The forward exchange market is an accurate predictor of future exchang

QUESTION

The forward exchange market is an accurate predictor of future exchange rates.

Indicate whether the statement is true or false.

ANSWER

FALSE
The forward exchange market is far from perfect as a predictor of future exchange rates. The forward market tends to offer coverage for exchange rate changes a few months—not years—ahead. Given this, it makes sense to pursue strategies that will increase the company’s strategic flexibility in the face of unpredictable exchange rate movements.