Question
You are considering a Covered Interest Arbitrage (Carry Trade) between the US and Mexico over the next 90 days. The following data apply (all borrowing
You are considering a Covered Interest Arbitrage (Carry Trade) between the US and Mexico over the next 90 days. The following data apply (all borrowing & lending rates are annualized). Note: Use 90/360 to convert to 90-day rates. US: Lending rate = 2.25%, Borrowing rate = 2.75% Mexico: Lending rate = 6.35%, Borrowing rate = 7.00% Spot rate of Mexican Peso (MXN) = USD 0.047 per 1 MXN 90-day Forward rate quote = 0.0478 USD per 1 MXN Assume you have USD 10865095 in capital. Part 1: You will borrow Blank 1. units of currency in the country from which you will borrow from over the next 90-days. Enter answer with no decimal places, example: 10121325 Part 2: You will lend Blank 2. units of currency in the country in which you will lend in for the next 90 days. Enter answer to two decimal places, example: Part 3: You will be paid Blank 3. Mexican Pesos in 90-days. Part 4: The number of Mexican Pesos from the previous Part will convert to Blank 4 USD. Part 5: In 90-days you will owe Blank 5. USD. Part 6: Your Profit in will be Blank 6. USD. Part 7: Your 90-day percent Return will be Blank 7. % Part 8: The Forward rate at which your profit from this trade is zero equals Blank 8. USD per 1 MXN.
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