Question
>>How? What? Carry trade pops up? What happens if Nanotronics relaxes its desire to stay riskless? Would it be possible to forecast the outcome if
>>How? What? Carry trade pops up?
What happens if Nanotronics relaxes its desire to stay riskless?
Would it be possible to forecast the outcome if the risk factor is left open (not managed)?
After some research, Nanotronics assembles the following data with the aim of executing a carry trade practice on $65,000.00 of its cash in the first round. In the first round, the firm stays conservative and decides not to tie up more than $65,000.00, with the aim of having its final position in USD. The firm needs to decide whether to invest (or deposit) the funds in the U.S. or in Mexico. The firm is looking for a riskless investment activity. Its horizon is exactly 9 months.
The following data are assembled. It takes the rates and figures in the market as they are given to it.
Spot rate: Buy rate MXN 19.235/USD;
Spot rate: Sell rate MXN 19.385/USD
Nine-month forward rate: Buy rate MXN 20.115/USD
Nine-month forward rate: Sell rate MXN 20.265/USD
U.S commercial interest rate (borrowing) 4.5 percent
U.S commercial interest rate (lending) 1.0 percent
Mexico commercial interest rate (borrowing or lending) 6.5 percent
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started