Assume $1 is currently equal to $19.33 Mexican peso in the spot market. Assume the expected...

Assume $1 is currently equal to $19.33 Mexican peso in the spot market. Assume the expected inflation rate in Mexico is 5.58 percent while it is 2.80 percent in the U.S. What is the expected exchange rate one year from now if uncovered interest rate parity exists?

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jeff jeffy answered 7 months ago

Assume $1 is currently equal to $19.47 Mexican peso in the spot market. Assume the expected...

Assume $1 is currently equal to $19.47 Mexican peso in the spot market. Assume the expected inflation rate in Mexico is 5.98 percent while it is 3.21 percent in the U.S. What is the expected exchange rate one year from now if uncovered interest rate parity exists? DO NOT USE DOLLAR SIGNS OR COMMAS IN YOUR ANSWER. ROUND ANSWER TO THE NEAREST CENT.

Spot rate of Mexican peso = $ .100 1-year Forward rate of Mexican peso = $...

Spot rate of Mexican peso = $ .100 1-year Forward rate of Mexican peso = $ .098 Mexican interest rate = 8% U.S. interest rate = 5% Show how to identify any arbitrage opportunity based on the Interest Rate Parity (IRP). What is your strategy to achieve your profit? What is your arbitrage profit per $1,000,000 (CIA)?

2. Covered Interest Arbitrage. Assume the following information: Spot rate of Mexican peso = $.100 180day...

2. Covered Interest Arbitrage. Assume the following information: Spot rate of Mexican peso = $.100 180day forward rate of Mexican peso = $.099 180day Mexican interest rate = 6% 180day U.S. interest rate = 4% Given this information, is covered interest arbitrage worthwhile for Mexican investors who have pesos to invest? Explain your answer. Assume you have 1,000,000 Pesos to invest (MXP). SHOW WORK

1. (a) Assume that the exchange rate between the U.S. dollar ($) and the Mexican peso...

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Suppose a bank is quoting the following for the Mexican Peso/$ spot exchange rate, and sees...

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US policymakers' decisions to bring down the value of the country's exchange rate, say from US$ 1 = 21 Mexican Peso today to US$1 = 19 Mexican Peso

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1. On January 1, 1975, the Mexican peso/U.S.$ exchange rate was Ps 12.5 = $1. By...

1. On January 1, 1975, the Mexican peso/U.S.$ exchange rate was Ps 12.5 = $1. By 1985, the exchange rate stood at Ps 208.9 = $1. a. Are these direct or indirect quotes? b. By how much did the Mexican peso appreciate or depreciate against the dollar over this 10-year period? c. By how much did the dollar appreciate or depreciate against the peso over this period? 2. In the second half of 1997, the Indonesian rupiah depreciated by 84%...

Again, suppose silver is currently selling at $4.23 per ounce in the spot market. Assume as...

Again, suppose silver is currently selling at $4.23 per ounce in the spot market. Assume as well that the current risk-free rate (implied repo rate) is 3.75% and that silver contracts involve 5000 ounces each. Also, now assume that carrying costs (storage and insurance) for silver are accessed at .31% (0.0031) per ounce price. a. Including carrying costs, what should the 6 month (180 days) silver futures contract be selling for according to the cost-of-carry model? b. If the 6...

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