Question

Using the information below, what will be the spot rate of the Singapore dollar (USD/SGD) in three years based on the international fisher effect (=UIRP)? KEEP AT LEAST TWO DECIMALS

Spot Exchange rate of the Singapore dollar (USD/SGD) =0.71

Three-year annualized IR in the U.S. ( i.e., annual rate expected each year over the following three years), in% = 3.6

Three-year annualized interest rate in Singapore (%) =0.62

Answer 1

International Fisher Effect	Remarks
When F1= Forward Rate Foreign Currency per USD	To be derived
S0= Spot Rate Foreign Currency per USD	=1/0.71=1.408 SGD/USD
rFC = Interest rate Foreign Currency	0.62%
rUS = Interest Rate USD	3.60%
t=Time period	3 yrs
Interest Rate Parity =IPR formula :
F1/S0= (1+rFC)/(1+rUS)
or F1=S0[1+(rFC-rUS)]
so , F1=1.408*[1+(0.62%-3.6%)]
F1=1.366 SGD/USD =1/1.366 USD /SGD=0.732 USD/SGD
So Spot Rate in 3 years would be 0.732 USD/SGD