Inflation rates in countries

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Assume 1-year interest rates in India and Singapore are 3% and 6%, respectively. Clearly, the interest rate in India is much lower than the interest rate in Singapore by 3%. Due to the significant interest rate differences between these 2 countries, several firms in Singapore have decided to borrow INR to finance their expansions rather than to get the borrowings from their home country. The current spot rate is INR54.0410/SGD.

What can you say about the inflation rates in both countries? Your answer must be supported by the impact on purchasing power of consumers for both countries.

Reference no: EM132745032

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