Aaya Inc., a UK company expects to receive Singapore dollars (S$) 8,00,000, six months from now. The current spot rate quoted by banker of Aaya Inc., is S$ 2.20 per Sterling Pound (£). The rate of interest prevailing in

(a) Forward Rate based on Interest Rate Parity Theory (IRPT) The exchange rate is S$ 2.20 per Sterling Pound (£). This means S$ is the home currency and £ is the foreign currency. Spot Rate (S$/£) = 2.20 Singapore Interest Rate (Rh) = 14% p.a. = 7% for 6 months (14%/2) UK Interest Rate (Rf) = 11% p.a. = 5.5% for 6 months (11%/2) IRPT Formula: Forward Rate = Spot Rate * [(1 + Rh) / (1 + Rf)] Forward Rate (S$/£) = 2.20 * [(1 + 0.07) / (1 + 0.055)] Forward Rate = 2.20 * [1.07 / 1.055] Forward Rate = 2.20 * 1.014218 Forward Rate = S$ 2.2312796 per £ (approximately S$ 2.23 per £)