Forecasting Exchange Rates - Case Study Example

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It should not dampen the hopes of Blade Inc to expand their operations in Thailand. The fact that Entertainment product Inc commits itself to import a limited number of Blade’s inc…
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Forecasting Exchange Rates
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Finance and Accounting: Assignment al Affiliation QUESTION The Thailand money market has been violated and foreign investors are losing confidence. It should not dampen the hopes of Blade Inc to expand their operations in Thailand. The fact that Entertainment product Inc commits itself to import a limited number of Blade’s inc products is attributed to their unfavorable market condition in Thailand. The import from Thailand will be cheaper but their exports could potentially lose value in Thailand market.
Unfavorable economic conditions are caused by high inflation and high interest rates in the economic. Using fundamental forecast will depend on interest rate which could help the company understand the trends of the interest rate in the next quarter. The forecast, however, depends on probability which might cause uncertainty. Technical forecast will indicate the depreciation of the baht to help the company understand the how their money could be work for them understand these conditions (International Journal of Forecasting 2008). Technical forecast will however depends on fundamental forecast to get historical data of inflation and interest rate.
The market-based analysis is based on the market and their implication of inflation and interest rate. The market analysis depends on demand-supply analysis. The market based analysis will help the company understand the consumption of their products in the Thailand market. It also assists management to know what quantity of export is needed. The analysis is also inclusive of interest rates and inflation rate and how it will affect the demand and supply of their products (International Journal of Forecasting 2008).
Question 2
If in the reality the value of the baht 90 days from now is $0.22. Using technical forecast, baht will depreciates with six percent to give its vale at $ 0.22. Technical forecast shows that the expected results are equal to the real value. The fundamental forecast has three scenarios. The scenarios depend on the chances of depreciation and their percentage. If the chance for depreciation is 30% then baht will deprecates by 2% making the value of baht to be $0.18. 15 % chance of depreciates, baht will depreciates with by 5%, making the value of baht to be $ 0.21. 35 percent change, baht will depreciate with 10% making the value of baht to be $0.20.
Question 3
The market based analysis is involved in interpreting the calculation. In the calculations, it is true to say that fundamental forecast is accurate but tiresome. It offers a wide range of solution with different scenarios. The values from the fundamental are added then averaged to get an aggregate value that will help the company to understand the Thailand market. The average shows that the expected value will be $0.20. It deviated from the real value by $0.02 (International Journal of Forecasting 2008). The technical is accurate because the expected value is equal to the real value but it doesn’t offer varies option making it biased and one sided (International Journal of Forecasting 2008).
Question 4
The financial exchange forecast has been in the international market. Some people dealing in the foreign make have no clue about the fundamental value of a dollar in respect to other currency. When dealing in the international markets, most people prefer to use purchasing power parity. PPP is a theoretical law of one price which state that identical goods in different countries should have identical prices. It is just a theory that doesn’t happen in reality. The PPP enabled me to advise the Blade Inc to continue importing goods from Thailand since they are cheaper
Relative economic strength looks at the strong economic environment with potentially high growth rate that is more likely to attract economic investors. It looks at the investment flow in the economy and the factors that promote and high investment. Relative economic strength of Thailand is weak and thus investors have lost confidence it.
International Journal of Forecasting: The financial analyst forecasting literature: A taxonomy with suggestions for further research January–March 2008, Pages 34–75. Vol. 24 issue 1 Read More
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