Week 3 – Forum Topic Write 400 words or more (4 – 5 paragraphs) each question; a minimum of 3 reference sources outside of the textbook is required.

Topic Responses will be critically graded on the thought quality of the response, work effort including the requirements for minimum length and number of references, research, and analysis. Write and edit the response in Microsoft Word, use the Spelling and Grammar Tool, and then copy and paste it into a reply to the topic thread in that week’s forum. All postings should meet professional standards in content, punctuation/writing style, and APA guidelines for citation of sources and should run approximately 400 words or more (4 – 5 paragraphs); a minimum of 3 reference sources outside of the textbook is required.
Students are expected to respond to each forum topic and to interact, discuss, and remain engaged throughout the week. The rubric for grading the Forum Topic Response is in the Syllabus section of Blackboard.

Your responses should be thoughtful and representative of graduate intellectual ability. The purpose of this assignment is to reinforce the chapter learning materials in alignment with the course learning outcomes and to bring a deeper understanding of content through research, analysis, and examples on broader topics that go beyond the text.
DQ #1 POINT: Use the spot rate to forecast. When a U.S.-based MNC firm conducts financial budgeting, it must estimate the values of its foreign currency cash flows that will be received by the parent. Since it is well documented that firms can not accurately forecast future values, MNCs should use the spot rate for budgeting. Changes in economic conditions are difficult to predict, and the spot rate reflects the best guess of the future spot rate if there are no changes in economic conditions.

COUNTER-POINT: Use the forward rate to forecast. The spot rates of some currencies do not represent accurate or even unbiased estimates of the future spot rates. Many currencies of developing countries have generally declined over time. These currencies tend to be in countries that have high inflation rates. If the spot rate had been used for budgeting, the dollar cash flows resulting from cash inflows in these currencies would have been highly overestimated. The expected inflation in a country can be accounted for by using the nominal interest rate. A high nominal interest rate implies a high level of expected inflation. Based on interest rate parity, these currencies will have pronounced discounts. Thus, the forward rate captures the expected inflation differential between countries because it is influenced by the nominal interest rate differential. Since it captures the inflation differential, it should provide a more accurate forecast of currencies, especially those currencies in high-inflation countries.
WHO IS CORRECT?

DQ #2 Baltimore, Inc., is a U.S. based MNC that obtains 10 percent of its supplies from European manufacturers. Sixty percent of its revenues are due to exports to Europe, where its product is invoiced in euros. Explain how Baltimore can attempt to reduce its economic exposure to exchange rate fluctuations in the euro.

Week 3 – Weekly Reflection
In the Weekly Reflections Forum, in 200 words or more, will comment on the topic coverage that was of most interest that week. State how the knowledge could be applied at your current or prior position and how the you and/or your employer could benefit.