Question
The one-month LIBOR rate in the US is 2% annualized. Argentina has pegged its currency (the Argentinian Peso, ARS) to the USD at 10 ARS/USD.
The one-month LIBOR rate in the US is 2% annualized. Argentina has pegged its currency (the Argentinian Peso, ARS) to the USD at 10 ARS/USD. You think the peg will likely continue over the next month, but you also think that there is 10% chance of a 30% devaluation of the ARS over the next month. What interest rate in Argentina would induce you to speculate by borrowing USD and investing in ARS?
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Financial Management Theory and Practice
Authors: Eugene F. Brigham, Michael C. Ehrhardt
16th edition
1337902608, 978-1337902601
