978-1337269964 Chapter 9 Lecture Notes

subject Type Homework Help
subject Pages 2
subject Words 281
subject Authors Jeff Madura

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Chapter 9
Forecasting Exchange Rates
Lecture Outline
Why Firms Forecast Exchange Rates
Forecasting Techniques
Technical Forecasting
Fundamental Forecasting
Market-Based Forecasting
Mixed Forecasting
Assessment of Forecast Performance Measurement of Forecast Error
Forecast Errors Among Time Horizons
Forecast Errors over Time Periods
Forecast Errors Among Currencies
Comparing Forecast Errors AmongForecast Techniques
Graphic Evaluation of Forecast Bias
Statistical Test of Forecast Bias
Shifts in Forecast Bias Over Time
Accounting for Uncertainty Surrounding Forecasts
Sensitivity Analysis Applied to Fundamental Forecasting
Interval Forecasts
Chapter Theme
This chapter stresses the value of reliable forecasts, but suggests that reliable forecasts can’t always be
obtained. Because no single forecast technique has been singled out as superior, various techniques are
mentioned. Whatever techniques the MNC chooses, it should monitor performance over time. This
chapter illustrates how this evaluation can be accomplished.
Topics to Stimulate Class Discussion
1. Which forecast technique would you use if you were hired by an MNC to forecast exchange rates?
2. Do you think there will ever be a published technical forecasting model that you could use in the
future to most accurately forecast exchange rates? Why or why not?
3. Recall the theories of purchasing power parity (PPP) and international Fisher effect (IFE) in Chapter
8. If these theories were used to forecast exchange rates, which techniques would they be classified
as? Why?
4. Assume there is a regression model that was able to identify the factors which affected exchange rate
movements in a recent four-year period. Also, suppose that the sensitivity of the exchange rate’s
movements to each factor was precisely quantified. Is there any reason not to expect superior
forecasting results from this method in the future? Elaborate.
5. What is the use of detecting a forecast bias?

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