You are a hedge fund manager in China considering putting some of your money in Singapore.You see different interest rates around the world and your exchange trading team (staffed by Stern alums of course) has provided you with the current spot rate and a future expected spot rate for the Singaporean Dollar.

*Current spot exchange rate is 5.00 Chinese Yuan per Singaporean Dollar

*Expected future spot rate in 30 days is 4.85 Chinese Yuan per Singaporean Dollar

*The 1 year interest rate on the Singaporean-denominated bank deposit (in Singapore) is 5%

*The 1 year interest rate on the Yuan-denominated bank deposit (in China) is 2%

(a) Where will you earn the higher rate of return - Singapore or China?

(b) Roughly speaking (we allow for rounding errors):If investing 1 billion Yuan into a Singaporean bank and then returning it to China using this expected future spot rate and assuming it turned out to be accurate, how much more money would our firm make (or lose) in Singapore instead of investing in China (be sure to note if this was a gain or loss)?(3pts)