Reference no: EM132866597

Monitoring Movements in the Foreign Currency's Value and Forecasting the Exchange rate Being a British company, the domestic currency used for valuation is the pound. The foreign company being in china.

What key factors likely affect the value of the main foreign currency to which your MNC is exposed over time?

Go to a website that has historical exchange rate information for the main foreign currency to which your MNC is exposed. Download the monthly exchange rate from January 2020 to December 2020 and explain how the exchange rate has changed.

Use an online data source to download the monthly inflation rate differential between the the foreign country in which you plan to do business and the United from January 2020 to December 2020. Calculate the expected exchange rates using the Relative Purchasing Power Parity (RPPP) over the 12 months of 2020.

Compare the actual monthly exchange rates and the expected rates using the parity and determine whether the parity appears to hold. Would you use this parity to forecast future exchange rates?

With references to the relevant literature, determine whether the Relative Purchasing Power Parity or International Fisher Effect are useful models to forecast exchange rates.

N.B: Historical exchange rates can be downloaded from: https://investing.com