In your own words, explain (in no more than 5 sentences) what USDMXNV1M is (Hint: Use the DES function that describes the USDMXNV1M index).

There was a considerable spike in USDMXNV1M from 14.8 to 20.5 on 6 Oct 2016. In your own words, explain (in no more than 5 sentences) the most likely reason underlying this observation. You need to know some key events that occurred between August and December 2016.

KEY EVENT:

(1)MEXICO MONEY BAKING: OVERNIGHT RATE ACTUAL:4.75 SURVEY:4.75 PREVIOUS:4.25 EFFECTIVE DATE 9/29/2016

(2)UNEMPLOTMENT RATE: ACTUAL:4.00 SURVEY:4.05 PREVIOUS:4.01 RELEASE DATE:9/28/2016 EFFECTIVE DATE:8/31/2016

USDMXNV1M BGN Curnc USDMXN 1 Month ATM Implied Volatility Implied volatility is a measure of the market expected future volatility of a currency exchange rate from now until the maturity date. The future volatility is the single undeterminable variable in the common Black Scholes option pricing model. Bloomberg ATM implied volatilities can be used to obtain the correct Black Scholes price for a delta neutral straddle struck at maturity Option Volatility Description