Assume that interest rate parity exists and will continue to exist. The US inter

Question

Assume that interest rate parity exists and will continue to exist. The US interest rate was 4% while the Singapore interest rate was 5% at the beginning of the month. Assume the Singapore interest rate rises while the U.S. interest rate declines over the month. Based on this information, the forward rate of the Singapore dollar exhibited a at the beginning of the month, by the end of the month. and O a. premium; the size of the premium increased b. discount; the size of the discount increased c. discount; discount changed to a premium d. premium; changed to a discount

Explanation / Answer

Currency with higher inflation rate will see depreciation of its currency , this is according to international fischer effect.

So Ans is option A

As Singapore interest rate was high both times its the premium which gets increased when Singapore interest rate increases.

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