EXHIBIT 8.

1 CORPORATE MOTIVES FOR FORECASTING EXCHANGE RATES

An MNC’s motivesJeff
forMadura, Arifulexchange
forecasting Hoque, Chandrasekhar Krishnamurti,
rates are summarised in International Financial
Exhibit 8.1. The Management,
motives 2nd Asia-Pacific
are distinguished Edition.
according © 2021 they
to whether Cengage Australia
Pty Ltd. All now Reserved.
Rights be clear. The
May following
not be section
scanned, describes
copied or the forecasting
duplicated, or postedmethods
to a available.
publicly accessible website, in whole or in part.
can enhance the MNC’s value by influencing its cash flows or its cost of capital. The need for accurate exchange rate projections should
 FORECASTING TECHNIQUES

Technical Forecasting
Fundamental Forecasting
Market-Based Forecasting
Mixed Forecasting

Jeff Madura,
The numerous methods Arifulfor
available Hoque, Chandrasekhar
forecasting Krishnamurti,
exchange rates can International
be categorisedFinancial Management,
into four 2nd Asia-Pacific
general groups: Edition.
(1) technical, (2)© 2021 Cengage Australia
Pty Ltd. All Rights Reserved.
fundamental, (3) market-based, and (4) mixed. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 FORECASTING TECHNIQUES

Technical Forecasting
 Involves the use of historical exchange rate data to predict future values
 Limitations of technical forecasting:
 Typically focuses on the near future
 Less useful for forecasting exchange rate in the distant future
 Technical forecasting model that worked well in one period may not work well in another.

exchange
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 FORECASTING TECHNIQUES

Fundamental Forecasting
 Based on fundamental relationships between economic variables and exchange rates
 Use of sensitivity analysis for fundamental forecasting
 Considers more than one possible outcome for the factors exhibiting uncertainty
 Use of PPP for fundamental forecasting
 While the inflation differential by itself is not sufficient to accurately forecast exchange rate
movements, it should be included in any fundamental forecasting model
 Limitations of fundamental forecasting include:
 Unknown timing of the impact of some factors
 Forecasts of some factors may be difficult to obtain
 Some factors are not easily quantified
 Regression coefficients may not remain constant.

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