Interest Rate Parity If your home country is the U.S. and based on the following information,...

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Interest Rate Parity If your home country is the U.S. and based on the following information, should you invest in Mexico? Fo

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Answer 1

Answer #1

Option 4 is the correct answer,

Implied future rate using interest rate parity:

USD per MXN = 1/0.0478 = 20.9205

Future rate per MXN = 20.9205 * (1.02)/(1.03) = USD20.71739

Future rate per USD = MXN 0.048269

Forward rate per USD = MXN 0.0479

Future rate is more than forward rate, it's not better to invest in Maxico.

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Answer 2

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