Assume the role of a CFO of a mid-sized company that exports to Europe. Your company received a contract to supply components to a German manufacturer. Discuss the various approaches available to help you accurately forecast exchange rates. Identify the implications of exchange-rate changes on the company’s marketing, production and financial decisions. The CFO of the company that exports export supply components to German manufacture should consider the variety of factors including exchange rates while estimating the budget for the coming year. Since the business of the company involved in exporting the supply material to Germany on contract basis in future, the company CFO need to forecast exchange rates as part of their pricing decision, choice of the currency (whether deal with dollars, or Euros) and hedging strategies to establish accurate budget for the project. In the process, the CFO can forecast exchange rates by using either of two approaches: fundamental forecasting or technical forecasting (Daniels, Radebaugh & Sullivan, 2011).

Fundamental forecasting predicts the future exchange rates on the basis of trends in the economic variables. The managers in the company can make use of econometric model by feeding the data to get the more subjective analysis. Technical forecasting uses the past trends in the exchange rates to determine the future trends in the rates. It presumes that the current exchange rates reflect all the facts in the market and future rates will follow the same patterns under similar circumstances. The researchers say that forecasting is imprecise and the past movements of the exchange rates cannot be used to predict future movements (Daniels et al., 2011). It is extremely important for the CFO of the company to learn to deal biases that turn the direction forecasting exchange rates. The major biases include, overreaction to the