You believe that the Singapore dollars

exchange rate movements are mostly attributed to

purchasing power parity. Today the nominal annual

interest rate in Singapore is 18 percent. The nominal

annual interest rate in the United States is 3 percent.

You expect that annual inflation will be about 4 percent

in Singapore and 1 percent in the United States.

Assume that interest rate parity holds. Today the spot

rate of the Singapore dollar is $.63. Do you think the

firm has developed a point forecast for two different

currencies presented in the following table. The firm

asks you to determine which currency was forecasted

with greater accuracy.

PERIOD

YEN

FORECAST

ACTUAL

YEN

VALUE

POUND

FORECAST

ACTUAL

POUND

VALUE

1 $.0050 $.0051 $1.50 $1.51

2 .0048 .0052 1.53 1.50

3 .0053 .0052 1.55 1.58

4 .0055 .0056 1.49 1.52