6. In February 1994, Argentina's currency board was in place, and 1 peso was exchangeable into 1 dollar. The following interest rates were available: .U.S. interest rate 90 days: 3.25% Peso 90-day deposits in Argentine banks: 8.99% Dollar interest rate for 90-day deposits in Argentine banks: 7.10% . a. What risk does the difference between the 7.10% dollar interest and 3.25% U.S. interest rate reflect? .b. What risk does the difference between the rate on 90-day pesos and 90-day dollar deposits by Argentine banks reflect? c. Assume that if the peso were to depreciate,, investors figure it will depreciate by 25%. Also, assume that if the Argentine bank were to default on its dollar obligations, it would pay nothing to investors. Compute the probability that the peso will devalue and the probability that there will be a default.

6. In February 1994, Argentina's currency board was in place, and 1 peso was exchangeable into 1 dollar. The following interest rates were available: - U.S. interest rate 90 days: 3.25% - Peso 90-day deposits in Argentine banks: 8.99% - Dollar interest rate for 90-day deposits in Argentine banks: 7.10% - a. What risk does the difference between the 7.10% dollar interest and 3.25% U.S. interest rate reflect? - b. What risk does the difference between the rate on 90-day pesos and 90-day dollar deposits by Argentine banks reflect? - c. Assume that if the peso were to depreciate, investors figure it will depreciate by 25%. Also, assume that if the Argentine bank were to default on its dollar obligations, it would pay nothing to investors. Compute the probability that the peso will devalue and the probability that there will be a default