4. Why were forward exchange rates trading at significant discounts or premiums from the spot price when the latter was fixed at ARS 1 = US$1 and backed by a currency board? On March 19, 2001, in the heyday of the Argentine currency board of fixed exchange rates, Banco Mercantil Internacional (BMI) – the second-largest Mexican commercial bank with 177 offices in 11 Latin American countries – announced a loss of US$80 million. The loss was attributed to unauthorized forward speculation on the Argentine peso (ARS) by a Chilean trader in the bank’s Buenos Aires branch. The amount of the underlying transactions was rumored to be close to US$1.8 billion, and initial reports indicated that the losses could be traced to short sales of the U.S.

dollar for the Argentine peso.