International Finance
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10. Forecasting with a Forward Rate. Assume that the four-year annualized interest rate in the United States is 9 percent and the fouryear 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 $.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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ANSWER:
Country Four-Year Compounded Return
U.S. (1.09)^4 - 1 = 41%
Singapore ...
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