2. Making Informed Decisions: Forecasting FX. Forecasting foreign-exchange rates is 100 + 20
notoriously dicult, especially in the short-run. Propose a methodology and assess how well
Mondi has been doing in this regard.
(a) Dene and give an example of absolute and relative purchasing power parity in the
context of Mondi’s Svenska Cellulosa transaction, respectively. How can Mondi use
PPP to improve on its FX forecasting?
(b) Are implied forward rates good predictors of future spot rates? Explain in the context
of Mondi’s forecasts by computing implied forward rates, comparing them to Mondi’s
forecast, and assessing their quality as a predictor for future spot rates.
(c) Given the data provided in the case, what do you think about Mondi’s forecasts?
(d) In light of Mondi’s FX forecast, what seems the treasury division expect with regards
to the Swedish Krona? How will the forecast FX change aect Mondi Group’s nancial
position?
(e) Bonus problem. How does the Law of One Price provide information on Mondi’s
competitive position? Taking USD-based International Paper as an example, construct
a numerical example to assess EUR-base Mondi’s competitive position given current FX
rates.
0 comments