Assume that interest rate parity exists. You expect that the one-year nominal interest rate in Singapore is 2 per cent, while the one-year nominal interest rate in China is 4 per cent. The spot rate of the Chinese yuan is S$0.2078. You will need 10 million Chinese yuan in one year. Today, you purchase a one-year forward contract in Chinese yuan. How many Singapore dollars will you need in one year to fulfil your forward contract?

 

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Solution aWhen Interest rate parity exists Exchange rat... View the full answer