International Financial Management 943Exchange Rate Forecasting Methods There are various methods for forecasting exchange rates between the currencies of two or more countries (Alvarez-Diaz, 2008). Predicting exchange rates between countries helps minimize risks while maximizing returns. Some of these methods include purchasing power parity (PPP), relative economic strength approach, econometric models, and time series models, among others. The forward method uses the purchasing power parity (PPP) method where the only consideration is the inflation rates between the two countries (Taylor, 2003). This approach depends on the theoretical law that identical goods will cost the same in different countries, excluding the exchange rate and excluding transaction and shipping costs. Based on this, the PPP approach involves changes in exchange rates to compensate for changes in prices due solely to inflation. A time series model is a kind of mathematical model developed over time and based on various variables that may have been identified practically over time. Some of these variables could be interest rates, business security, guaranteed returns, etc. This may be more accurate than simply assuming inflation rates alone. The leader of this particular company must have had experience that the forward rate estimates were a low estimate of the rates. Must have developed some mathematical models (e.g. time series models) to estimate exchange rates based on experience. This type of model may have included data collected over a long period of his working career and therefore a better criterion for estimating exchange rates than one that simply assumes that changes are due to inflation rates alone. These… half the paper… and the higher your risk tolerance, the more you can invest in higher-risk securities that offer the potential for higher returns. While there is no foolproof strategy to ensure that you are making safe investments, financial advisors are always there to help an investor make informed decisions. In the current scenario, both investments will have at least the same returns and therefore it will be worth selecting an investment that has equal or higher returns with reduced risk. Speculative investing in the current scenario could be more devastating in terms of returns if, for example, speculative rates were not applied and instead forward rates at the end of the day were used. Although in this case the investor will still get a profit at 2.7%, it will not be as expected at 6.65%, while an alternative investment option is available where a return of 6.65% or more is guaranteed..