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Predicting Exchange Rate Movements Whether international businesses are concerned with the long-term profitability of foreign investment, export opportunities, the price competitiveness of foreign

Predicting Exchange Rate Movements Whether international businesses are concerned with the long-term profitability of foreign investment, export opportunities, the price competitiveness of foreign imports, or the short-term foreign exchange transactions that occur on a daily basis, the firm must pay attention to exchange rate movements. These movements can affect whether a deal results in a profit or a loss. Exchange rate movements are extremely difficult to predict, though businesses need some forecasting ability to plan. A number of theories, methods, and borrowings from other disciplines have been applied to the movement of exchange rates. Some approaches work better in the short-run, while others apply more appropriately to longer-term plans. Managers in international enterprises must understand the predictive power and uses of the theories and approaches to use them effectively in strategy and operations cently which of the factors below are better short-range predictors and which are better long-range predictors of movements in foreign exchange rates 1. A government can increase the supply of money, which makes it easier for Individuals and businesses to get credit. This, in turn, can increase the demand for goods and services, which should grow at the same rate to avoid inflation Toto 2. Evidence reveals that various psychological factors play an important role in determining the expectations of market traders Click to select 2. If the growth in a country's money supply is faster than the growth in its output, price inflation is fueled. filick to sweet 4. Expectations of market traders tend to become self-fulfilling prophecies. Liclick to select 5. Nominal interest rate is the sum of the required "real" rate of interest and the expected rate of inflation during the loan period. A strong relationship exists between nominal interest rates and inflation rates Cliek te leet 6. Market traders tend to follow the actions of other traders, but the individual effects can be hard to predict. Click to Prey 1 Nyt

Jun 10 2021 View more View Less

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