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In: Finance

A pair of white shoe costs $20 today, and will cost $31 one year from today....

A pair of white shoe costs $20 today, and will cost $31 one year from today. The same pair of shoe currently costs 275 pesos today, and will cost 856 pesos one year from today. If there are no arbitrages, how many dollars will you get for a peso one year from today?

Solutions

Expert Solution

Solution:

As per the information given in the question we have

Cost of One shoe today In dollars = $ 20 ;    Cost of One shoe today in peso = 275 pesos ;

In case of no arbitrages

The number of dollars we get for a peso today = Cost of One shoe today in dollars /   Cost of One shoe today in peso

= 20 / 275

= $ 0.072727

= $ 0.0727 ( when rounded off to four decimal places )

Further we have

Cost of One shoe one year from today In dollars = $ 31 ;    Cost of One shoe one year from today in peso = 856 pesos ;

Since there are no arbitrages,

The number of dollars we get for a peso one year from today = Cost of One shoe one years from today In dollars / Cost of One shoe, one year from today in peso

= 31 / 856

= $ 0.036215

= $ 0.0362 ( when rounded off to four decimal places )

Thus the dollars we will get for a peso one year from today = $ 0.0362

The solution is $ 0.0362

jeff jeffy answered 7 months ago
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