Question
Assume that interest rate parity exists. The 2-year interest rate is presently 10.25% in the U.S. and 27.69% in Mexico. Dokar Co. (a U.S. firm)
Assume that interest rate parity exists. The 2-year interest rate is presently 10.25% in the U.S. and 27.69% in Mexico. Dokar Co. (a U.S. firm) has an agreement under which it will develop and export software to Mexico's government two years from now and will receive 20 million Mexican pesos in two years. The spot rate of the peso is $.10. Dokar uses a 2-year forward contract to hedge its receivables in two years. How many dollars will Dokar Co. receive in two years? (Hint: Note that the interest rates above are already expressed as two-year interest rates.)
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