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The one-year interest rate in Singapore is 11 percent. The one-year interest rate in the United States is 6 percent. The spot rate of the Singapore...
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Question

The one-year interest rate in Singapore is 11 percent. The one-year

interest rate in the United States is 6 percent. The spot rate of the Singapore dollar (S$) is $.50 and the forward rate of the S$ is $.46. Assume zero transaction costs.


(i) Does interest rate parity exist?


(ii) Can a U.S. firm benefit from investing funds in Singapore using covered interest arbitrage?


(Please provide detailed answer)

Step-by-step answer

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Subject: Business, Finance

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