Forecasting with a forward rate

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Forecasting with a Forward Rate.

Assume that the five-year annualized interest rate in the United States is 8 percent, and the five-year annualized interest rate in Singapore is 5 percent. Assume interest rate parity holds for a five-year horizon. Assume that the spot rate of the Singapore dollar (SGD) is USD 0.65, which also means the spot rate of "SGDUSD." If the forward rate is used to forecast exchange rates, what will be the forecast for the Singapore dollar's spot rate in five years? What percentage appreciation or depreciation does this forecast imply over the five-year period?

Reference no: EM132704871

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