T Khan is a U.S.-based investor. Mr. Khan does not believe that the international Fisher effect (IFE) holds. Current one-year interest rates in Singapore are 12 percent, while one-year interest rates in the United States are 8 percent. Khan converts $800,000 to Singapore dollars and invests them in Singapore money market security. One year later, he converts the Singapore dollars back to U.S. dollars. The current spot rate of the Singapore dollar is $.7220. If the spot rate of the Singapore dollar in one year is $.6892, what are Khan’s net profit (or loss) in U.S. dollar and percentage return from his strategy?
T Khan is a U.S.-based investor. Mr. Khan does not believe that the international Fisher effect (IFE) holds. Current one-year interest rates in Singapore are 12 percent, while one-year interest rates in the United States are 8 percent. Khan converts $800,000 to Singapore dollars and invests them in Singapore money market security. One year later, he converts the Singapore dollars back to U.S. dollars. The current spot rate of the Singapore dollar is $.7220. If the spot rate of the Singapore dollar in one year is $.6892, what are Khan’s net profit (or loss) in U.S. dollar and percentage return from his strategy?
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter27: Investment, The Capital Market, And The Wealth Of Nations
Section: Chapter Questions
Problem 9CQ
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T Khan is a U.S.-based investor. Mr. Khan does not believe that the international Fisher effect (IFE) holds. Current one-year interest rates in Singapore are 12 percent, while one-year interest rates in the United States are 8 percent. Khan converts $800,000 to Singapore dollars and invests them in Singapore
If the spot rate of the Singapore dollar in one year is $.6892, what are Khan’s net profit (or loss) in U.S. dollar and percentage return from his strategy?
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