Compare the forecasts for the future movement of the GBP using a “Technical” forecasting approach to what would be predicted using a “Market” forecasting approach.
Question 1 – Compare the forecasts for the future movement of the GBP using a “Technical” forecasting approach to what would be predicted using a “Market” forecasting approach. How would you interpret what each type of these two forecasts tells you? Which do you thing is more accurate, and why? Chapter 10: Consider how your business would be exposed to exchange rate risk. Explain your exchange rate risk, both transactions risk and economic risk by answering the following questions. Question 2 – Is your business subject to transaction exposure? Explain how and why/why not. Is your business subject to economic exposure? Explain how and why/why not. GIVE EXAMPLES. Overall, do you think that the value of your business would be favorably or unfavorably affected with the expected future movement of the GBP/USD exchange rate? Explain your rationale. Question 3 – Go to your data collected earlier to assess historical exchange rate movements (Yahoo.finance works for this) of the GBP/USD. Consider how the dollar cash flows from your services may have changed each year if exchange rates changed over each of the last 3 years. Specifically, assume that your annual revenue will be 200,000 GBP and determine the value of that amount in dollars based on the exchange rate today, one year ago, two years ago, and three years ago. Does it appear that your dollar revenue would have changed significantly due to exchange rate movements had you been in business during the last three years? Show your calculations! Assume that you expect the GBP/USD will change over the next year by the same degree as it changed over the past year. Given the futures price of the GBP, and the percentage change of the GBP/USD over the past year, would it be wise to sell futures to hedge the GBP/USD that will be converted to dollars one year from now? Explain why or why not.
