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
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
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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