Financing and the Currency Swap Decision Bradenton Co. is considering a project in which it will export special contact lenses to Mexico. It expects that it will receive 1 million pesos after taxes at the end of each year for the next 4 years and after that time its business in Mexico will end as its special patent will be terminated. The peso’s spot rate is presently $.20. The U.S. annual risk-free interest rate is 6 percent, while Mexico’s annual risk-free interest rate is 11 percent.

Interest rate parity exists. Bradenton Co. uses the 1-year forward rate as a predictor of the exchange rate in 1 year. Bradenton Co. also presumes the exchange rates in each of years 2 through 4 will also change by the same percentage as it predicts for year