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You are considering boosting returns on your excess cash holdings by investing in the Mexican bond market. Your investment advisor warns you that while yields
You are considering boosting returns on your excess cash holdings by investing in the Mexican bond market. Your investment advisor warns you that while yields are higher vs. U.S. bonds, returns might be hurt if the peso depreciates. The spot exchange rate between the Mexican peso and USD is 9.5 pesos per 1 USD; the 1-year forward price is 9.8707 pesos per USD. The 1-year interest rate is 2.5% in the U.S. and 6.5% in Mexico. How does the USD-holding period return from the Mexican bond compare with that available in the U.S.?
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