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)?

Expert Solution

jeff jeffy answered 1 year ago

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

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