Forecasting with a Forward Rate Assume that the four-year annualized interest rate in the United States is 9 percent and the four-year annualized interest rate in Singapore is 6 percent. Assume interest rate parity holds for a four-year horizon. Assume that the spot rate of the Singapore dollar is $0.60. If the forward rate is used to forecast exchange rates, what will be the forecast for the Singapore dollar’s spot rate in four years? What percentage appreciation or depreciation does this forecast imply over the four-year period?

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 9, Problem 10QA
Textbook Problem

Forecasting with a Forward Rate Assume that the four-year annualized interest rate in the United States is 9 percent and the four-year annualized interest rate in Singapore is 6 percent. Assume interest rate parity holds for a four-year horizon. Assume that the spot rate of the Singapore dollar is $0.60. If the forward rate is used to forecast exchange rates, what will be the forecast for the Singapore dollar’s spot rate in four years? What percentage appreciation or depreciation does this forecast imply over the four-year period?

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