The question 5

3. (5 points) Suppose t the Mexican peso POsO (MEXN) is pegged to the U.S. dollar. Yoa think tee isa 20% devalaat on against the dollar if itoocus. The 6-msooth interest quoted by Mexican banks were 60% in USD and that the devaluation will occur? 80%inON, what is the probability 4 (S points) Suppose that the 30-day forwand rate is 497/S, the current spot rate in 995/3 you expect the future spot rate in 30 days to be 194/S. How would you make to ae in the forwaed market by either buying oe selling V10,0007 What is your and expected proit in an annual term? 5. (10 points) Suppose that the Mercedes-Benz price in the UK is E40,000, while its price in Germany is 45,000. The spot exchange rate is E1.1627/E. Assume the Mercedes Benz price is representative of the general price level in both countries (a) (4 points) Is the overvalued or undervalued relative to the E Explain why. (b) (3 points) What is the real exchange rate that would have been forecast by the price of Mercedes Benz in two countries? (c) (4 points) You obtained two job offers to work in London and Frankfurt as a Mercedes-Benz sales manager. The London office offers you 50,000 per year, while the Frankfurt office 55,000 Which offer should you take? Why