Consider an investment in an international venture

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Investment in an international venture is affected by financial and trade regulation of countries. Organization forecast the changes in exchange rate, interest rate and analyzes the trade and financial regulation of country before the investment in an international venture. It analyzes the advantages and disadvantages of investing in international market through forecasting and studying the other nation regulation and policies for the investment (Richardson, 2011). Forecasting the foreign currency exchange rate is advantage for investment firm because changes in exchange rates affects the capital structure of a firm. Changes in exchange rate affects the value of currency that can increase or decrease the value of investment in a firm.

Forecasting the foreign currency exchange rate is beneficial for a foreign investment firm to understand the monetary policy of a country that affects value of currency in foreign exchange market. Organization predicts the uncertainty of foreign market and currency changes in value from day to day through forecasting the foreign currency exchange rate. So, it is effective to protect the organization from the foreign exchange rate risk. Forecasting the foreign currency exchange rate represents the market condition of country that is beneficial for international firm to take investment and financial decisions to increase the return (Papaioannou, 2006). Disadvantages of forecasting the foreign exchange rate is that it cannot forecast the actual currency changes in country that could affect the capital structure or financial decision of a firm.

Interest rate parity and its forecasting are beneficial for an international venture through analyzing the differences between two currencies. Interest rate parity is used to analyze the relationship between the interest rate and currency exchange rate. It plays important role in foreign exchange market because it calculates the forward exchange rate for currencies refers to current rates (Hester, 2008). Interest rate parity determines the interest ...