1. You were recently hired by the Doolittle Corporation corporate treasury to help oversee its expansion into Europe. Blake Francis, the CFO, wants to hire a foreign exchange forecasting company. Blake has asked you to evaluate three different companies, and he has obtained information on their past performances. Out of a total of 50 forecasts for the dollar/euro rate, he companies reported the number of times they correctly forecast appreciations and depreciations:

Correct down forecasts correct up forecasts
Morrissey Forex Advisors 20 5
Pixie Exchange Land 20 4
Forex Cures 12 12

There are a total of $ 35 dollar appreciations (down periods) and 15 dollars depreciations (up periods) in the sample Blake wants to know two things:

a) Can anything be said about the companies’ forecasting ability with the available data?

b) What additional information should Blake try to obtain in order to form a better Judgement?

2. Consider the big MacPPP data ( ATTACHED), pick a currency that was overvalued versus the dollar. Go to www.oanda.com to find the current exchange rate and determine how much you would have made or lost by speculating on the overvaluation?

Please Don’t forget the references!

it will be helpful if you include this author :

  • Title: International Financial Management

Geert Bekaert and Robert Hodrick

ISBN-10: 0132162768 | ISBN-13: 978-0132162768

Publisher: Pearson Prentice Hall

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