Suppose the expected exchange rates are the average expectations by investors of exchange rates in one year. Imagine that the interest rates are for equally risky assets and are annual rates. Current exchange rate Expected exchange rate Current interest rate (%) United states 3.0 Australia 1.98 A$/US$ 2.09 A$/US$ 5.0 Singapore 1.93 S$/US$ 1.82 S$/US$ 2.0 Calculate the rate of return for a U.S. dollar investing in the Australian deposit for one year. Calculate the rate of return for U.S. dollar investing in the Singapore deposit for one year. Among these three options (United States, Australia, and Singapore), which is the best place for the investor to invest? Which is the worst place?

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Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.