# Change in the Forward Premium over Time Assume that interest rate parity exists and will continue to exist. As of today, the one-year interest rate in singapore is 4 percent; the corresponding rate is 7 percent in the United States. The singapore central bank is expected to decrease interest rates in the future so that as of December 1 , you expect that the one-year interest rate in singapore will be 2 percent. The U.S. interest rate is not expected to change over time. Based on the information, explain how the forward premium (or discount) is expected to change by December 1.

FindFind

### International Financial Management

14th Edition
Publisher: Cengage
ISBN: 9780357130698
FindFind

### International Financial Management

14th Edition
Publisher: Cengage
ISBN: 9780357130698

#### Solutions

Chapter 7, Problem 38QA
Textbook Problem

## Change in the Forward Premium over Time Assume that interest rate parity exists and will continue to exist. As of today, the one-year interest rate in singapore is 4 percent; the corresponding rate is 7 percent in the United States. The singapore central bank is expected to decrease interest rates in the future so that as of December 1 , you expect that the one-year interest rate in singapore will be 2 percent. The U.S. interest rate is not expected to change over time. Based on the information, explain how the forward premium (or discount) is expected to change by December 1.

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