International Bond and Currency Markets Essay Example | Topics and Well Written Essays - 2000 words

International Bond and Currency Markets - Essay casefulIn precise, it also helps in pre-determining the fluctuation of the currency appreciation or depreciation in follow to countries and influenced cross border trade prospects by a substantial extent. It is noneworthy that the volatility of transform deem, in the picayune meet and also in the long run depends on multiple factors such as the demand and supply prospects in the monetary market. Arguably, forecasting in the long run and compact run is considered as quite difficult, which can be explained with reference to the Theory of Speculation in the market and the corporate belief of the investors about the future prospects (Andreou & Zombanakis, 2006). Based on these underpinnings about the importance of forecasting exchange rate fluctuations, this essay will aim at emphasising the challenges commonly witnessed by analysts when obtaining the intended forecasting results in the petty run as well as in the long run perfor mance of the exchange rate. Challenges in Forecasting Exchange Rate in Short Run Arguably, in the short run, the forecasting of exchange rate is nearly impossible. Forecasts, which are delivered by the macroeconomic factors, are generally less(pre tokenish) accurate than the results obtained through with(predicate) Random Walk theory application. In general, the Random Walk Theory presumes that market changes, in harm of personal line of credit-prices changes, are unpredictable. Even though in the long run forecasting, the theory has been considered by many financial investors and analysts, the short run implications of Random Walk theory remains under considerable scrutiny. It is in this stage setting that no claims to substantiate a perfect Random Walk model in the short-run stock price fluctuation were firmly made. On the contrary, arguments centralised on the theory that forecasting stock-prices changes in the short run is challenging owing to the fact that in the short run, the volatility of the exchange rate is less but the speed of convergence based on Purchasing Power Parity (PPP) is slower than that record in the long run (Babazadeh & Farrokhnejad, 2012). Correspondingly, it has been argued that the level of exchange rate in the short run is not very predictable, but is also not entirely unpredictable, as the volatility of the currency and the correlation amid them vary with time and hence, forecasting becomes challenging (Mitra, 2008). The current account balances, real income of the people, interest rates, the preferences of the consumers regarding the domestic or foreign products, are all signified as market fundamentals influence the stock-prices in the short run, as per the conceptual framework of PPP. As explained by Taylor & Taylor (2004 135), PPP is a disarmingly simple theory that holds that the nominal exchange rate among two currencies should be equal to the ratio of aggregate price levels between the two countries, so that a unit of currency of one country will have the same purchasing power in a foreign country. Subsequently, it is the monetary policies, the fiscal policies and the market speculations relate the forecasting decisions in the short run. These factors are important when considering the financial transfers with regards to the