Spot rate to forecast the exchange rate

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Reference no: EM131452498

Seam Co. (based in Thailand) exports cable wire to U.S. manufacturers. It invoices its product in Thai baht and will not change its price over the next year. There is intense competition between Scam and the local cable wire producers based in the U.S. Seam's competitors invoice their products in U.S. dollars and will not be change their prices over the next year. The annualized risk-free interest rate is presently 8 percent in Thailand versus 3 percent in the U.S. Today the spot rate of the U.S. dollar is 35 Thai baht. Seam uses this spot rate as a forecast of the future exchange rate of the U.S. dollar. Seam expects that revenue from its cable wire exports to the U.S. will be about 20 million Thai baht over the next year.

If Seam decides to use the international Fisher effect rather than the spot rate to forecast the exchange rate of the U.S. dollar over the next year, will its expected revenue from its exports be higher, lower, or unaffected? Explain.

Reference no: EM131452498

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