Huaneng Power International Inc. Raising Capital in Global Markets Case Solution
The accuracy of forecasting actual stock returns can be uncertain due to the efficiency of the information in the market but still forecasting of financial trends is common. Foreign exchange movements are typically forecasted through the analysis of fundamental events or technical charts. Financial institutions usually provide research that is needed to make a forecast of price movements.
There are many forecasting methods that are commonly being used in businesses for making forecasts. These categories can be mainly divided into two broad categories which are as following;
Qualitative forecasting techniques are usually based on individual perspective and decision making of a person and consumersâ€™ preferences or they are even based on expertsâ€™ experiences.They are the most appropriate when the situation is new such as the launch of a new product or issuance of a new company with no comparable companies in the market. These techniques can be applied to long-term decisions.
ualitative forecasting methods include the following;
â€¢ Informed opinion and Judgment
â€¢ The Delphi method,
â€¢ Jury of Executive Opinion
â€¢ Market Research, and
â€¢ Historical life-cycle analogy.
â€¢ Sales force polling
Quantitative forecasting methods are more popular as they provide results in a quantity, which allows the forecast to be compared easily with other forecasts. Quantitative forecasting models predict future data by using data from the past. They can only be used if the past data is provided and future movement is expected follow a similar pattern (YS Abu-Mostafa, 1996). They are usually used in short term decision making. Following are some of the most popular quantitative forecasting methods;
â€¢ Average approach
â€¢ NaÃ¯ve approach
â€¢ Drift method
â€¢ Seasonal naÃ¯ve approach
â€¢ Time series methods
â€¢ Causal / econometric forecasting methods
â€¢ Judgmental methods
â€¢ Artificial intelligence methods
Limitations of Forecasting Methods
It can be noted that almost all forecasting techniques are unique but some assumptions are commonly used while making a business forecast. These assumptions are following:
â€¢ It is usually assumed that relationships that existed in the past will keep continuing in the future. It can also be said that financial forecasting is usually based on historical data.
â€¢ Forecasts cannot be perfect; therefore managers usually keep some allowances to allow for deviations in the market forecasts (D Bunn, 1991).
â€¢ It is difficultto forecast for longer periods as risks and uncertainties are high as time passes in a forecast. Therefore, forecasting plans that are for long term are usually more inaccurate.
Forecasting for Business Managers
In this developed era, when technology has become an important part of our life and making forecasting more difficult,therefore managers and employee should keep themselves up to date. A business should prepare its quarterly sales volume forecasts for its primary product. The companies may review the actual sales data and compare it to the data to be forecasted. By using the past data, the forecast can predict the general level of sales and also it determines the pattern of the sales, which is followed.
Huaneng Power International (HPI) is company of China that operates in power industry in China. HPI has plans to expand its operation and therefore, it requires significant funding of at least $ 4.5 billion.The management of the company believes that this funding could not be raised from within the country as increased growth in the territory has strained the domestic funds of the country; therefore many companies got listed on foreign stock exchange to gain access to foreign capital markets. HPI management also planned to get listed on the New York Stock Exchange to get capital funds…………….
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