Question
Assume that locational arbitrage ensures that spot exchange rates are properly aligned. Also, assume that you believe in the International Fisher Effect (IFE). The spot
Assume that locational arbitrage ensures that spot exchange rates are properly aligned. Also, assume that you believe in the International Fisher Effect (IFE). The spot rate of the Singapore dollar(S$) against the Australian dollar(A$) is 0.9296 (A$/S$). The spot rate of the Malaysian ringgit(MYR) against the Singapore dollar is 0.4732 (S$/MYR). You expect that the one-year inflation rate is 6.26% in Singapore, 4.73% in Malaysia and 2.02% in Australia. The one-year interest rate is 9.32% in Singapore, 7.55% in Malaysia and 5.59% in Australia. What is your expected the spot rate of the Malaysian ringgit in one year with respect to the Australian dollar (A$/MYR)? (enter 4 decimal places number with no sign or symbol)
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