Response to Two Posts
I agree that forecasting error can either be positive or negative. The forecasting error is the bias of the forecasting method, and it can be corrected. Several factors can cause forecasting error. The first One is the inability of business managers to identify correctly the relationship between business variables. In business, there is more than one variable that affects the expected results. Thus, leaving out one variable negates the accuracy of the forecast. The second one is failing to recognize changing trends and incorporating them accurately in the forecasting model. Business keep on changing because of the dynamic nature of the external business environment, therefore, a forecasting model should accommodate the trends. Otherwise, it will give biased results. Finally, bias in forecasting is caused by failure to update the forecasting techniques and assumption. Fundamental changes in business require adjustment of the forecasting technique. It is more difficult to hedge unstable currency because the currency value is exposed to unpredictable government policies that may seek to attain political and selfish interest of the country leaders (Mary& Parker, 2007).
Second Post Response
I agree with your post that in projecting project budget, the exchange rate should be forecasted so that the projection set are realistic. This is because foreign exchange risk is an important factor that should be considered in preparing project projection. A company should use the various method of hedging to reduce the risk exposure. Project projection may not be attained if the method used to predict the future value of the foreign currency is inaccurate. Therefore, it is important to determine the bias in the forecast method and correct it in advance (Madura, 2012).
References
Madura, J (2012). International Financial Management. Mason, OH: south-western, Cengage learning
Mary, A., & Parker, G. (2007). How to Find the Source of Error in Your Operations
Management Forecast. Retrieved April 02, 2016, from http://www.dummies.com/how-to/content/how-to-find-the-source-of-error-in-your-operations.html
