2. Forecasting the future is obviously a daunting challenge. All things considered, how well do you think JPMC is doing?

Veselina (Vesi) Dinova was asked by her director at Teknekron (US) to review the exchange rate forecasting accuracy of her company's primary financial services provider, JPMorgan Chase (JPMC). Vesi focused on the three primary currencies the company's operations. revolved around: the dollar, the euro, and the yen. Teknekron had relied upon JPMC for most of its currency advisory services for years, and the forecasts provided by JPMC were regularly used in sales and sourcing deci- sions-including pricing. The rise of the euro against the dollar in recent years had, however, raised the interest in the accuracy of these forecasts. Assessing that accuracy was now Vesi's task. Focusing first on the U.S. dollar/euro spot exchange rate, Vesi plotted the forecasts provided by JPMC and the actual spot exchange rate for the 2002-2005 period, in go-day increments. As illustrated by Exhibit 1, the results were not encouraging. Although JPMC had hit the actual spot rate dead-on in both May and November 2002, the size of the forecasting errors and direction of movement seemed to increase over time.