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What are Khan net profit or loss in US dollar

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Question - T Khan is a U.S.-based investor. Mr. Khan does not believe that the international Fisher effect (IFE) holds. Current one-year interest rates in Singapore are 12 percent, while one-year interest rates in the United States are 8 percent. Khan converts $800,000 to Singapore dollars and invests them in Singapore money market security. One year later, he converts the Singapore dollars back to U.S. dollars. The current spot rate of the Singapore dollar is $.7220.

(a) According to the IFE, what should the spot rate of the Singapore dollar in one-year be?

(b) If the spot rate of the Singapore dollar in one year is $.6892, what are Khan's net profit (or loss) in U.S. dollar and percentage return from his strategy?

Reference no: EM132947785

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