36)Explainhowacentralbankwouldengageindirectinterventiontodecreasethevalueofitsdomes
ticcurrency.
37)Foreignexchangeforecastingcanbeeitherlong-term,orshort-terminduration.Compareandc
ontrastthemotivationforandthetechniquesaforecastermightuseforeachofthetimeperiods.
Short-runforecastsareusuallymoretacticalinnatureasafirmmaydesiretoreduceexchangerateri
skassociatedwithforeignreceivableorpayables.Technicalfactorsandshort-termmarketexpecta
tionsareoftenmoreimportantforshort-runforecastersthanlong-runparityorfundamentalecono
micconditions.
Long-runforecastsaremorestrategicinnatureasfirmsmakekeydecisionsaboutenteringnewfore
ignmarkets.Longertimehorizonstendtobelessaccuratebutalsorequirelessaccuracy.Whatforec
asterstypicallydesireisagenerallong-rununderstandingoftherelationshipsbetweenmarkets.Fu
ndamentalanalysisandparityconditionstendtobemoreimportantthantechnicalfactorsinthistyp
eofforecasting.
38)Doesforeigncurrencyexchangehedgingbothreduceriskandincreaseexpectedvalue?
Explain,andlistseveralargumentsinfavorofcurrencyriskmanagementandseveralagainst.
Foreignexchangecurrencyhedgingcanreducethevariabilityofforeigncurrency
receivables&payablesbylockinginspecificrateinfutureviaaforwardcontract,
convertingcurrencyatcurrentspotrateusingamoneymarkethedge,orminimizing
unfavorableratemovementw/currencyoption.Noneofthesehedgingtechniques,