Blades Chapter 9

Blades 9

Brian, will, Andrew, tyler

1) If doing business in baht, then forecasting the baht would be beneficial to help make managerial investment decisions as well as hedging decisions. If exchange rates are semi predictable then there could be opportunities for arbitrage as well as profits from futures/options as well. Profits and operational costing could also be manipulated with an effective forecasting model.

2) Market based, because its based on spot or forward rates which are provided. Fewer variables.

3) the forward rate, because the forward rate is already a form of forecasting in a way. it also accounts for possible inflation factors

4) the forward rate mb forecast shows that baht is expected to

Change by -8.70 (-0.08696) percent. baht in 90 days according to this method will

be $0.021.

5) the forex market for baht would prove to be ultimately inefficient if the technical forecast is more accurate. This would also suggest that the information used to figure the exchange rate is somehow incomplete in some manner. The profitability suggests a weak form

6)

1 [tech err] -0.01727

2 [fund error] -0.02614

3 [mb error] -0.04545

with these number it is easy to see that the lowest error and thus most accurate is technical

7) Doubtful, if the floating exchange rates encounter environmental factors (political instability, economic down turns, market demand forces) there could be large amounts of volatility not covered by historical data, and thus not efficiently predicted by historical models over time.