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 8 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...

1. (a) Assume that the exchange rate between the U.S. dollar ($) and the Mexican peso (P) is pegged at ER=$1/P4. Assume that, initially, this exchange rate corresponds to equilibrium in the foreign exchange market. Illustrate the initial situation in the market for peso-denominated deposits using demand and supply curves. (b) The United States now undertakes an economic policy that puts upward pressure on the interest rate on dollar-denominated deposits (i). Mexico follows an economic policy that puts downward pressure...

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

Covered Interest Arbitrage. Assume the following information: Spot rate of Mexican peso = $.100 180‑day forward rate of Mexican peso = $0.097 180‑day Mexican interest rate 0.06 180‑day U.S. interest rate 0.065 Suppose an initial investment of 1,000,000 pesos. Given this information, Mexican Investors would generate a yield of ???

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

Suppose a bank is quoting the following for the Mexican Peso/$ spot exchange rate, and sees the following interest rates (ignore bid/ask spreads): Spot exchange rate: MXN 21.50/USD Interest rate on a 180-day Mexican asset (quoted on an annual basis) = 4.95% Interest rate on a 180-day US asset (quoted on an annual basis) = 0.28% Given these quotes, what should be the 180-day forward MXN/USD exchange rate quoted by the bank under the assumption covered interest parity...

You expect that the Mexican peso will appreciate against the Australian dollar from its spot rate...

You expect that the Mexican peso will appreciate against the Australian dollar from its spot rate of A$0.2275 to A$0.2552 in one year. The following interbank lending and borrowing rates exist: Lending Rate Borrowing Rate Australian dollar 7.92% 8.96% Mexican peso 8.18% 9.31% You have a borrowing capacity of either 3 million Australian dollars or 5 million Mexican pesos in the interbank market. Without using your own deposited fund, estimate the profits in percentage. (enter 2 decimal places...

Suppose the Mexican peso British pound exchange rate is currently at 22, and short run interest...

Suppose the Mexican peso British pound exchange rate is currently at 22, and short run interest rates in the UK is 2%. Explain (and compute) what will happen to the spot peso-pound exchange rate if the future pound-peso rate remains 0.04 and the Mexican interest rates is cut by 5%.

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

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, would tend to ____ the value of exports to Mexico; thus, ____ the value of GDP in the United States.reduce ; reducingincrease ; reducingincrease ; increasingreduce ; increasingcannot be assessed based on information provided

Assume that December 2019 Mexican Peso futures contract has a price of $.90975 per 10MXN. You...

Assume that December 2019 Mexican Peso futures contract has a price of $.90975 per 10MXN. You believe the spot price in December will be $.9700 per10MXN. The size of 1 MXN futures contract is MXN500,000. What position do you need to enter into to benefit from your anticipation? If you use three futures contracts, what is your profit/loss if you end up correct in your belief? A speculator is considering the purchase of five three-month Euro call options (size €100,000...

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