You have 300 dollars and have the ambition of extracting arbitrage across time. The interest rate in the US is 4% and in Mexico 6%. The spot direct exchange rate in the US is 0.25 and the forward rate is 0.24. Calculate the profit you can make by entering a future contract to sell peso.
You have 300 dollars and have the ambition of extracting arbitrage across time. The interest rate in the US is 4% and in Mexico 6%. The spot direct exchange rate in the US is 0.25 and the forward rate is 0.24. Calculate the profit you can make by entering a future contract to sell peso.
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter6: Managing In The Global Economy
Section: Chapter Questions
Problem 12E
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You have 300 dollars and have the ambition of extracting arbitrage across time. The interest rate in the US is 4% and in Mexico 6%. The spot direct exchange rate in the US is 0.25 and the forward rate is 0.24. Calculate the profit you can make by entering a future contract to sell peso.
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