Question
Interest rates in Mexico are 3% and in the United States they are currently 0.025%. The MXN/USD spot rate is 0.076. You are offered a
Interest rates in Mexico are 3% and in the United States they are currently 0.025%. The MXN/USD spot rate is 0.076. You are offered a 12-month forward rate of .08.
A) show whether the forward contract is overvalued or undervalued.
B) which currency should you borrow and why ?
C) what is the percentage return from engaging in Covered Interest Arbitrage ?
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Analysis for Financial Management
Authors: Robert c. Higgins
8th edition
73041807, 73041803, 978-0073041803
