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Category > Business & Finance Posted 01 May 2017 My Price 7.00

Forward versus Spot Rate Forecast

Forward versus Spot Rate Forecast Assume that interest rate parity exists. The 1-year risk-free interest rate in the United States is 3 percent versus 16 percent in Singapore. You believe in purchasing power parity, and you also believe that Singapore will experience a 2 percent inflation rate and the United States will experience a 2 percent inflation rate over the next year. If you wanted to forecast the Singapore dollar’s spot rate for 1 year ahead, do you think that the forecast error would be smaller when using today’s 1-year forward rate of the Singapore dollar as the forecast or using today’s spot rate as the forecast? Briefly explain.

 

Answers

Alpha Geek
(8)
Status NEW Posted 01 May 2017 06:05 PM My Price 7.00

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file 1493665168-answer1.docx preview (154 words )
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