Determine the benefit from investing funds, Financial Management

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Determine the benefit from investing funds

Testing IRP

Solve the following problem:

The 1-year interest rate in Singapore is 11 percent. The 1-year interest rate in the United States is 6 percent. The spot rate of the Singapore dollar (S$) is $.50 and the forward rate of the S$ is $.46. Assume zero transaction costs.

a. Does interest rate parity exist?

b. Can a U.S. firm benefit from investing funds in Singapore using covered interest arbitrage?

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Financial Management: Determine the benefit from investing funds

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