Current Spot Rate = 20.3 MXP / $
Risk-Free Rate USD = 0.25 % and Risk-Free Rate Mexico = 1.6 %
3-Month Forward Rate = Current Spot Rate x [(1+Risk-Free Rate Mexico) / (1+Risk-Free Rate US)] = 20.3 x [(1.016)/(1.0025)] = 20.5734 MXP / $ ~ 20.57 MXP / $
Question 10 (1 point) Saved The Spot Rate (SO) for Mexican Pesos (MXP) for US dollars...
spot rate of mexican peso: 0.1 180 day mexican interest rate: 6% 180 day US interest rate: 5% 180 day forward rate of mexican peso: $0.098 a. US investor has $50,000 to invest. find the return from covered interest arbitage for the US investor b. Mexican investor 500,000 Mexican pesos to invest. find the return from covered interest arbitage for the Mexican investor c. realignment of covered interest arbitrage from the presceptive of the mexican investor:
ose the Mexican peso is trading in the spot market at 7 pesos per dollar, and the forward market sells the peso at 7.5 per dollar. It interest rates in the United States are 4%, what are they in Mexico if Interest Rate Parity holds? Round to ity holds nearest tenth of a percent. O 3.1% 7.1% O 15.1%
Assume the following information: Spot rate of Mexican peso : $.100 180-day forward rate of Mexican peso : $.098 180-day Mexican interest rate : 6% 180-day U.S. interest rate : 5% a) What would be the return to a Mexican investor who has 1,000,000 Mexican pesos from using covered interest arbitrage? (i.e. the Mexican investor will convert the peso into U.S. dollar at the spot rate and invest it in the U.S. for 180 days, and simultaneously sell a U.S....
Question 4 (1 point) Suppose 1 Mexican Peso equals 0.049 US dollars in the spot market. Six-month Mexican government debt has an annualized return of 0.055 (and thus a 6-month periodic return of {rm/2)). Six-month U.S. government debt has an annualized return of 0.02 and a periodic return of (rd/2). If interest rate parity holds, what is the value of 1 Mexican Peso in US dollars U.S. in the 180-day forward market? AAP
2. Assume the following information: Spot rate of Mexican peso : $.100 180-day forward rate of Mexican peso : $.098 180-day Mexican interest rate : 6% 180-day U.S. interest rate : 5% a) What would be the return to a Mexican investor who has 1,000,000 Mexican pesos from using covered interest arbitrage? (i.e. the Mexican investor will convert the peso into U.S. dollar at the spot rate and invest it in the U.S. for 180 days, and simultaneously sell a...
If the nominal exchange rate is 12 Mexican pesos per $1 Question 9 (1 point) If the nominal exchange rate is 12 Mexican pesos per $1, a margarita that costs 36 pesos in Mexico costs --- in terms of U.S. currency. 0 $0.33 O $4 O $0.25 O $3
3. Covered Interest Arbitrage. Assume the following information: Spot rate of Mexican peso = $ .100 1-year Forward rate of Mexican peso = $ .098 Mexican interest rate = 8% US. interest rate =5% Show how to identify any arbitrage opportunity based on the Interest Rate Parity (IRP). What is your strategy to achieve your profit? What is your arbitrage profit per $1,000,000 (CIA) ?
Today’s spot rate of the Mexican peso is $.10. Assume that purchasing power parity holds. The U.S. inflation rate over this year is expected to be 7 percent, while the Mexican inflation over this year is expected to be 3 percent. Carolina Co. plans to import from Mexico and will need 20 million Mexican pesos in one year. Determine the expected amount of dollars to be paid by the Carolina Co. for the pesos in one year.
Implication of the Forward Rate for Foreign Financing: Misner, Inc., is a U.S.-based MNC with a subsidiary in Mexico. Its Mexican subsidiary needs a one-year loan of 10 million pesos for operating expenses. It can borrow pesos at 11% and can use peso revenues to be received over the year to repay the loan. Alternatively, it can barrow dollars at 6%. Interest rate parity exists. The forward rate of the peso is expected to overestimate the spot rate of the...
The one-year risk free rate in Mexico is 10%, and in the US is 5%. Assume IRP hold and that the current spot rate is 19.50 pesos/USD. Based on the information, what should be the one year forward rate?