Assume that today’s spot rate is used as a forecast of the future spot rate one year from now. The New Zealand dollar, Mexican peso, and singapore dollar are expected to move in tandem against the U.S. dollar over the next year. The Canadian dollar’s movements are expected to be unrelated to movements of the other currencies. Because exchange rates are difficult to predict, the forecasted net dollar cash flows per currency may be inaccurate. Do you anticipate any offsetting exchange rate effects from whatever exchange movements to occur? Explain.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter P3, Problem 2Q
Textbook Problem

Assume that today’s spot rate is used as a forecast of the future spot rate one year from now. The New Zealand dollar, Mexican peso, and singapore dollar are expected to move in tandem against the U.S. dollar over the next year. The Canadian dollar’s movements are expected to be unrelated to movements of the other currencies. Because exchange rates are difficult to predict, the forecasted net dollar cash flows per currency may be inaccurate. Do you anticipate any offsetting exchange rate effects from whatever exchange movements to occur? Explain.

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