Question

Discuss the predictors should a manager monitor to forecast exchange rate changes.

Answer 1

There are various predictors of forecasting of exchange rate changes. They are as follows-

A.Change in the inflation rate of the company is a very good predictor of determination of the exchange rate changes

B. Changes in the inflation measurement guidelines of a country is also a good predictor of the determination of the exchange rate changes which are going to be taking place in the future

C. Monetary policy changes and the intervention of various Central banks for management of their exchange rates are also an important indicator of management of exchange rate

D. Current account deficit and balance of payment is another indicator of management of foreign exchange rate fluctuation

E. Political uncertainty which will lead to changes in the political regime of a country will be helpful for determination of exchange rate fluctuations

F.various micro factors like changes in the demand pattern and changes in the supply pattern can also be taken into perspective while determination of the fluctuation of the exchange rate.