A Singapore bank expects that the Singapore dollar will depreciate against the US dollar from its spot rate of US$0.43 to US$0.42 in 60 days. The following interbank lending and borrowing rates exist:

Currency	Lending Rate	Borrowing Rate
US Dollar	7%	7.2%
Singapore Dollar	22%	24%

The bank considers borrowing 10 million Singapore dollars in the interbank market and investing the funds in US dollars for 60 days. Estimate the profits (or losses) that could be earned from this strategy. Should CBSH International Bank pursue this strategy?

Q3

If the Asian countries experience a decline in economic growth (and experience a decline in inflation and interest rates as a result), how will their currency values (relative to the U.S. dollar) be affected?

Q4

Suppose that the market condition is summarized as follows:

Annual interest rate in Japan: 1.0% per annum

Annual interest rate in Germany: 6.0% per annum

Current spot exchange rate: 114.4733 per

One-year forward exchange rate: 110.2423 per

Assume that the arbitrager can borrow 100 million or its equivalent amount. Answer the following questions:

Is interest-rate-parity hold in this case? Explain. Explain the transactions that an arbitrager can engage in to take advantage of this arbitrage opportunity. Calculate the arbitrage profit after one-year time based on your Part (b) answer.