Your managing director has received forecasts of US$ exchange rates in two years-time from three...
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Finance
Your managing director has received forecasts of US$ exchange rates in two years-time from three leading banks. $/ forecasts 31 December 2022
Pallbank
1.25
Superbank
1.55
Emubank
1.68
The current spot mid-rate (December 2020) is $1.5240/
A non-executive director of your company has suggested that in order to forecast future exchange rates, the interest rate differential between countries should be used. She states that as short term interest rates are currently 6% in UK, and 8.5% in the USA, the exchange rate in two years time will be $1-597/.
Required:
You have been asked by your managing director to prepare a brief report discussing
1.The likely validity of the non-executive director's estimate
2.Possible reasons for the wide spread of forecasts by the banks.
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