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Determine whether the forward rate is priced appropriately

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Reference no: EM133073589

You has obtained forward contract quotations for the Singapore Dollar (SGD) to determine whether covered interest arbitrage may be possible.

-The quoted forward rate is $0.745 per SGD for a 90-day forward contract.

-The current spot rate is $0.715 per SGD.

-Ninety-day interest in the U.S. is 3.00 percentage, whereas 90-day interest rates in Singapore are 3.75 percentage (these rates are not annualized).

Requirements:

a. Determine whether the forward rate is priced appropriately.

b. If it is not, determine the profit you could generate by borrowing $500,000 from the a US bank and engaging in a covered interest arbitrage strategy.

Reference no: EM133073589

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