Please prepare a 4-5 page paper (double-spaced) which addresses the following:

Content

Exchange Rate Theoretical Analysis

• Select two of the following exchange rate theories and explain how they work:
  • Interest Rate Parity
  • Purchasing Power Parity
  • International Fisher Effect
• Apply the selected exchange rate theories to test them against the USD/Foreign Currency exchange rate.  (You will need to choose a foreign currency to test them with.)  Show your data, calculations and results. 
• Do the theories explain the observed exchange rate behavior?  Is one theory more accurate than the other?  Interpret your findings.

Forecasting Exchange Rates

• Explain two of the methods for forecasting exchange rates and provide examples of how they might work.

Exchange Rate Exposure

• Explain each of the following types of exchange rate exposures.  Provide examples to demonstrate how these work:
  • Transaction
  • Translation
  • Economic
• Explain how companies can use each of the following techniques to mitigate exchange rate exposure.  Provide examples (the more detailed the better).  Indicate what type(s) of foreign exchange exposure your examples mitigate:
  • Future and forward contracts
  • Call and put options
  • Cross-hedging
  • Money Market hedge
  • Restructuring operations

Note:  In your application of the different hedging techniques include an explanation as to how a company can use futures to hedge both receivables and payables.  Indicate whether the company should be purchasing or selling the foreign currency forward for each of these types of transactions.

Structure and Mechanics

Paper length should be 4-5 pages (excluding title page and references).

Please organize your paper into relevant sections and include section titles to help make the paper organized and easy to follow.

Include a cover page, citations in the body of your paper, where relevant and references at the end of your paper.  The paper should in APA format.