Fist post
I agree with you that economists and investors should predict the future exchange rate to know when to derive the value of money. The foreign exchange market is purely speculative therefore no model can accurately determine the accurate future exchange rate. Mixed forecasting is the popular method used by traders because it has a wide base i.e. it in cooperates all the other forecasting method. In forecasting, the investor should not only consider the current factors that are affecting the currency value but also the future factors. For example, a country that is politically stable may be facing elections in one year time. This factor should not be ignored in forecasting because new administration must bring some economic changes that affect the currency value. However, the weight attached to this factor should be less compared to the weight attached to the same factor for politically unstable country's currency. Politically unstable country’s currency fluctuates with big margin during an election period. Thus, forecasting technique used should first determine the factors that affect the exchange rate and then attach different weights to these factors (Chambers, Mullick, & Smith, 1971).
Second post
I agree with you that there are different techniques available for forecasting future exchange rate. The accuracy of a forecasting depends on the suitability of the technique used. However, it is quite difficult to predict accurately future exchange rate because the value of the currency is affected by many economic factors. Thus, investors should hedge their future foreign transaction to reduce their risk exposure. There are different forms of hedging. The popular ones are forward contracts, currency options, and future contracts. Investors who use currency option exercise their option only when there is adverse movement in currency value (Madura, 2012).
References
Chambers, J. C., Mullick, S., & Smith, D. (1971). How to Choose the Right Forecasting
Technique. Retrieved March 28, 2016, from https://hbr.org/1971/07/how-to-choose-the-right-forecasting-technique
Madura, J. (2012). International Financial Management. Mason: South-Western Cengage
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