Question
Assume the following information: Spot rate of Mexican peso= $ .100 1-year Forward rate of Mexican peso= $ .098 Mexican interest rate= 8% US. interest
Assume the following information:
Spot rate of Mexican peso= $ .100
1-year Forward rate of Mexican peso= $ .098
Mexican interest rate= 8%
US. interest rate=5%
Show how to identify any arbitrage opportunity based on the Interest Rate Parity (IRP). What is your strategy to achieve your profit? What is your arbitrage profit per $1,000,000 (CIA) ?
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Introduction to Finance Markets Investments and Financial Management
Authors: Melicher Ronald, Norton Edgar
15th edition
9781118800720, 1118492676, 1118800729, 978-1118492673
