You are given the following information: U.S. Nominal one year interest rate 1% Spot rate Germany...

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You are given the following information: U.S. Nominal one year interest rate 1% Spot rate Germany 3% $1,19 Singapore 2% $0.74 Interest rate parity exists between the U.S. and Germany as well as the U.S. and Singapore. The international Fisher effect exists between the U.S. and Germany as well as the U.S. and Singapore. Bill (based in the U.S.) invests in a one-year CD (certificate of deposit) in Singapore and sells Singapore dollar one year forward to cover his position. Erica (based in Singapore) invests in a one-year CD in Germany and does not cover her position. What are the returns on funds invested for Bill and Erica respectively? Please justify your explanation both in terms of theory and calculations. (Hint: You can get the exchange rate between euro and Singapore dollar from their respective rate to USD) Please clearly label your return calculations, i.e., the investment return for Bill and Erica respectively. You are given the following information: U.S. Nominal one year interest rate 1% Spot rate Germany 3% $1,19 Singapore 2% $0.74 Interest rate parity exists between the U.S. and Germany as well as the U.S. and Singapore. The international Fisher effect exists between the U.S. and Germany as well as the U.S. and Singapore. Bill (based in the U.S.) invests in a one-year CD (certificate of deposit) in Singapore and sells Singapore dollar one year forward to cover his position. Erica (based in Singapore) invests in a one-year CD in Germany and does not cover her position. What are the returns on funds invested for Bill and Erica respectively? Please justify your explanation both in terms of theory and calculations. (Hint: You can get the exchange rate between euro and Singapore dollar from their respective rate to USD) Please clearly label your return calculations, i.e., the investment return for Bill and Erica respectively.

Answer rating: 100% (QA)

Solution To calculate the returns on funds invested for Bill and Erica we need to use the interest rate parity and international Fisher effect formulas to determine the expected forward exchange rates ... View the full answer