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Suppose we live in a future where Elon Musk has colonized Mars. Mars's currency is calls the Mars Bar (M, for short). Earth now has
Suppose we live in a future where Elon Musk has colonized Mars. Mars's currency is calls the Mars Bar (M, for short). Earth now has one unified currency (E). Suppose Mars desparately needs to import chocolate from Earth. Mars will face currency risk. Imagine that Mars wants to hedge this with a forward contract. The current M/E spot rate is 3.3%. The interest rate in Mars is 4.6% and in Earth is 3.71%. The inflation rate in Mars is 1.6% and in Earth is 1.66%. What is the best estimate of the 4 month forward rate? 0 a. 3.30941 b. 3.29935 O c. Not enough information O d. 3.29805 O e. 3.30065 O f. 3.29061 O g. 3.32832
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