Suppose that you are a trader in Australia and you see the following quotes on your...

Suppose that you are a trader in Australia and you see the following quotes on your screen:

Spot exchange rate : 0.9999 Singapore dollar (SGD) per Australian dollar (AUD)

270-day forward rate : 0.9000 SGD per AUD

270-day AUD interest rate 12% per annum (p.a.)

270-day SGD interest rate 1% p.a.

Given these quotes, which way will capital flow? Explain why. Suppose that you have AUD 100,000. Can you make a profit (in AUD) with these quotes? If the spot exchange rate and the interest rates were to stay the same, at what 270-day forward rate would there be no capital flows?

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jeff jeffy answered 2 years ago

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