What occurs in cash forecasting when exchange rates change dramatically?

In the context of cash forecasting, when exchange rates change dramatically, there is potential for discrepancy in cash amounts. This is because fluctuations in exchange rates can significantly affect the value of foreign transactions and the cash inflows and outflows in different currencies. If a company has expected cash flows in foreign currencies and the exchange rate changes, the equivalent value in the domestic currency will also change, potentially leading to unforeseen gains or losses.

As a result, the initial cash forecast may no longer reflect the actual cash position, which requires ongoing adjustments and analysis to ensure the forecast remains accurate and relevant. This volatility makes accurate forecasting challenging, as companies must continuously monitor changes in the market to account for these variations. Hence, the correct answer highlights the possibility of discrepancies in cash amounts due to fluctuating exchange rates, emphasizing the complexities involved in cash forecasting in a global financial environment.