Assume that you obtain a quote for a 1-year forward rate on the Mexican peso. Assume that
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Assume that you obtain a quote for a 1-year forward rate on the Mexican peso.
Assume that Mexico’s 1-year interest rate is 40 percent, while the U.S. 1-year interest rate is 7 percent. Over the next year, the peso depreciates by 12 percent. Do you think the forward rate overestimated the spot rate 1 year ahead in this case? Explain.
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Mehwish Aziz
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