Question
Consider the following data. Suppose the expected exchange rates are the average expectations by investors for exchange rates in one year. Imagine that the interest
Consider the following data. Suppose the expected exchange rates are the average expectations by investors for exchange rates in one year. Imagine that the interest rates are for equally risky assets and are annual rates. Current exchange rate Us - Australia 1.80$US$ Singapore 1.75S$/US$ Expected Exchange Rate US- Australia 1.90 A$/US$ Singapore 1.65 S$/US$ Current Interest Rate (%) US 2.0 Australia 4.0 Singapore 1.0 a. Calculate the rate of return for a U.S. dollar investor investing in the Australian deposit for one year. b. Calculate the rate of return for a U.S. dollar investor investing in the Singapore deposit for one year. c. Among these three options (United States, Australia, and Singapore), where is the best place for the investor to invest? Where is the worst place?
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