Foreign Exchange Management:Forecasting and Quantifying FX Currency Risk

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Forecasting of FX:-
 

For layman like us who are not specializing in FX dealing,the usual mean of forecasting/understanding the trend of  exchange rate is reading the various sources of research reports from bankers,FX specialists and specialized FX magazines.
For others,who are more technical in nature are using economic model such as purchasing power parity to look at the long term trend. Another mean is the use of technical analysis namely using charting to forecast FX trend.
Quantifying FX currency risk:-
Normally to ascertain our currency exposure,we deploy the use of projected balance sheet for translation exposure (only with non working capital items) and multiple operating cash flow forecast denominated in foreign currencies for transaction exposure re:the value,currencies,timing of these flows to be assessed.
Hence we can then build up different scenario analysis based on the aforesaid exchange forecasts to compute the value at risk.
Besides the above method,normally,we also quantify FX currency risk,based on the effect of 1% or 1 cent movement.

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