1.

Considering both Hover’s current practices and future plans, how can it benefit
from forecasting the baht-dollar exchange rate?

Answer: Well, Hover can benefit from forecasting the baht-dollar exchange rate in a
few ways. Apparently, Hover currently generates net cash inflows expressed in Thai
baht. The dollar value of the cash flows is sensitive to the future baht-dollar
exchange rate, and Hover might have to decide to hedge the cash flows based on the
exchange rate forecast. Secondly, Hover may set up a subsidiary in Thailand in the
close future. Earnings that are generated by the subsidiary may be remitted back to
the parent, and a forecast of future exchange rates may help Hover in making
hedging decisions. Alternatively, earnings may be invested in Thailand,
which would be more attractive if the baht is expected to appreciate. On the
contrary, if Hover plans to borrow short term funds- or long-term funds in Thailand,
it would benefit from a depreciation of the baht currency. Forecasting the baht-
dollar exchange rate will aid Hover in making both short-term and long-term
decisions regarding its Thai operations.