Question: Suppose the expected exchange rate is the average expectation by the investor for the exchange rate in one year. Imagine that the interest rates are

Suppose the expected exchange rate is the average expectation by the investor for the exchange rate in one year. Imagine that the interest rates are equally risky assets and are annual rates

	United states	Australia	Singapore
Spot Exchange rate	-	1.80A $/USD	1.75 S$/US$
Expected Exchange Rate	-	1.90A $/USD	1.65 S$/US$
Current Interest Rates	2%	4%	1%

Calculate the rate of return on a US Investment?

(i). Calculate the rate of return of US dollar investment in the Australian deposit for one year?

(ii) What parts of the rate of return arise only due to the interest earned on deposit?

(iii) What component of the rate of return arises from the percentage change in the value of principal payments due to change in exchange rates?

(iv) What component of the rate of return arises from the percentage change in the value of interest payments due to change in exchange rates?

(i) Calculate the rate of return for US Dollar Investor Investing in the Singapore deposit for 1 year?

(ii) What parts of the rate of return arise only due to the interest earned on deposit?

(iii) What component of the rate of return arises from the percentage change in the value of principal payments due to change in exchange rates?

(iv) What component of the rate of return arises from the percentage change in the value of interest payments due to change in exchange rates?

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