Predicting the Forward Exchange Rate and the Effectiveness of Hedging Accounting

Abstract

This paper shows how prediction accuracy for forward exchange rate negotiated for a forward contract can be a major reason to help entities avoid the risk of loss and understating or overstating income and financial position. I used a double exponential smoothing model to predict the forward exchange rate for US dollar to Canadian dollar. I find prediction accuracy when running the model to the time series of the exchange rate.