End-of-Chapter 9 Problems

End-of-Chapter 9 Problems - Moore School of Business...

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1 Moore School of Business Spring 2012 University of South Carolina IBUS 401 – INTERNATIONAL FINANCIAL MANAGEMENT Answers to selected end-of-chapters problems Chapter 9 Forecasting Exchange Rates Problems assigned: 1, 2, 3, 4, 5, 8, 10, 16, 19, 20 1. Several decisions of MNCs require an assessment of the future. Future exchange rates will affect all critical characteristics of the firm such as costs and revenues. To be more specific, various operations of MNCs use exchange rate projections, including hedging, short-term financing and investing, capital budgeting decisions, long-term financing, and earnings assessment. Such operations will be more effective if exchange rates are forecasted accurately. 2. Technical forecasting involves the review of historical exchange rates to search for a repetitive pattern that may occur in the future. This pattern would be the basis for future exchange rate movements. Even if a technical forecasting model turns out to be valuable, it will no longer be valuable once other market participants use it. This is because their actions in the market due to the model’s forecast will cause the currency values to move as suggested by the model immediately instead of in the future. Also, MNCs often prefer long-term forecasts. Technical forecasting is typically conducted for short time horizons.
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End-of-Chapter 9 Problems - Moore School of Business...

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