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[Audio] CHAPTER OBJECTIVES Explain how companies can benefit from forecasting exchange rates Describe the common techniques used for forecasting Explain how forecasting performance can be evaluated Explain how interval forecasts can be applied.
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[Audio] Why Firms Forecast Exchange Rates Hedging decisions Whether a company hedges may be determined by its forecasts of foreign currency values Short-term investment decisions Corporations sometimes have a substantial amount of excess cash available for a short time period. Large deposits can be established in several currencies Capital budgeting decisions When an MNC's parent assesses whether to invest funds in a foreign project, the firm takes into account that the project may periodically require the exchange of currencies.
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[Audio] Why Firms Forecast Exchange Rates Earnings assessment The parent's decision about whether a foreign subsidiary should reinvest earnings in a foreign country or remit earnings back to the parent may be influenced by exchange rate forecasts Long-term financing decisions MNCs that issue bonds to secure long-term funds may consider denominating the bonds in foreign currencies An MNC's motives for forecasting exchange rates are summarised in Exhibit 10.1.