12.1 Currency Forecasting

To model the effect of currency fluctuations on income, a process must include a forecast of future exchange rates between currencies. The exchange rates forecast will affect the calculation of gains/losses and consolidation to a Specified Reporting Currency.

When a new Forecast Rates Assumption Rule is created, it is designated with a specific Reporting Currency. All Exchange Rates in that Assumption Rule are defined as exchange rates to one unit of the Reporting Currency.

The following forecasting options are available:

Table 12-1 Currency Forecasting Methods

Method	Description
Flat	Exchange rates throughout the forecast remain equal to the rate in effect on the As-of-Date.
Structured Change	Exchange rates are based on an incremental change from the previous period. 5
Direct Input	The user manually inputs the exchange rate for each modeling bucket.
Parity	The exchange rate between the selected currency and the reporting currency is based on interest rate forecasts for the Reference IRC associated with each of the two currencies.
No Arbitrage	The exchange rate between the selected currency and the reporting currency depends on the interest rates in effect on the As-of-Date for the Reference IRCs of the two currencies.

This section covers calculations used for the Structured Change, Parity, and No Arbitrage Currency Exchange Rate methods.