Currency exchange rates and Eurocurrency interest rates are as follows: Current Singapore dollar (S$) spot rate $0.50/S$

Question:

Currency exchange rates and Eurocurrency interest rates are as follows:

Current Singapore dollar (S$) spot rate $0.50/S$

1-year Singapore dollar (S$) forward rate $0.51/S$

1-year Singapore dollar (S$) interest rate 4.0%

1-year U.S. interest rate 6.0%

In what direction will covered interest arbitrage force the quoted rates to change? Explain the steps and compute the profit based on a $1 million initial position.

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