Question
The spot rate for the Mexican peso is USD/MXN 19.8610. Suppose that the 1-year interest rate in the U.S is 5.10% and the 1-year interest
The spot rate for the Mexican peso is USD/MXN 19.8610. Suppose that the 1-year interest rate in the U.S is 5.10% and the 1-year interest rate in Mexico is 12.17%. The bank is quoting a 1-year forward exchange rate of USD/MXN 23.938. How can you take advantage of any mispricing that exists?
A. | borrow MXN; sell MXN at the spot rate; buy MXN at the foward rate | |
B. | borrow USD; sell MXN at the spot rate; buy MXN at the forward rate | |
C. | borrow USD; buy MXN at the spot rate; sell MXN at the forward rate | |
D. | borrow MXN; buy MXN at the spot rate; sell MXN at the forward rate |
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