Question

Interest Rate Parity If your home country is the U.S. and based on the following information, can you take advantage of an arbitrage strategy? Forward MXN/USD 0.0479 Time (months) 2.00% 3 3.00% 0.0478 Spot MXN/USD No, because you would profit $50,000 in the U.S. which is more than the $46,077.41 you would from an arbitrage strategy. Yes, because your annual return would be 3.84% No, because you would lose $3,922.59 Yes, because would you will make a profit without investing your own money.

Answer 1

forward rate = spot rate*((1+Rd)/(1+Rf))

= 0.0478*(1+0.5%)/(1+0.75%)

= 0.0477

as interest rate parity does not hold we will have arbitege profir it is for sure.

and in each arbitrage strategy we do not invest our own fund it is risk free investment in which we will earn profit with staking our single Cent.

so Last Option

Yes, Because would you will make a profit without investing your own money.