You need to decide whether to invest (or deposit) your funds in the U.S or in Mexico. You are looking for a riskless investment activity. Your horizon is exactly 9 months. You have exactly $65,000.00 and your final position is to end in USD. The following data are made available to you. Note: You are neither a banker nor an FX dealer. You take the rates and figures in the market as they are given to you.

Spot rate: Buy rate MXN 19.235/USD;

Spot rate: Sell rate MXN 19.385/USD

Nine-month forward rate: Buy rate MXN 20.115/USD

Nine-month forward rate: Sell rate MXN 20.265/USD

U.S commercial interest rate (borrowing or lending) 4.5 percent

Mexico commercial interest rate (borrowing or lending) 6.5 percent

1.It is more profitable to deposit this fund in: a.The U.S. b.Mexico. c.It is equally the same.

2.Considering both countries, the estimated additional gain is (drop $ sign in your answer): Hint: You are asked to make a profit.

3.These two markets are in equilibrium, Indicate Agree or Disagree

4.If you reverse your strategy, your gain or loss in USD will be (drop $ sign in your answer and if it is a loss, indicate it by negative sign in your answer).

5.Carry trade involves borrowing in low interest currencies and investing the funds in high interest currencies. Agree, disagree.

6.In a global environment, the statement of the interest rate is 6 percent: a.Does not make much sense. b.Needs a more accurate statement that identifies the currency. c.Is deficient since interest rates are currency related. d.All answers in this question are correct.