Use the following information to answer the question(s) below.
Rearden Metal, a U.S. manufacturer, has made a purchase of from d'Anconia Copper and is expecting a cash outflow of 2 million ARS (Argentine Pesos) in six months. The currency spot rate is $0.2500/ARS and the six-month forward rate is F 6months = $0.2470/ARS. The appropriate annual discount rate for the Argentine Peso is 6.5% and the annual discount rate for the U.S. dollar is 4%.
-What conclusions can you make about the degree of international integration between the U.S.and Argentine markets?

Question

Quizplus · Accepted Answer

C) PV = 11ea7e54_8d11_d4c4_ba34_bdbff4b4df0a_TB1620_11 = $484,406.85
Here we invest the PV in the U.S. for six months while entering into a forward contract that allows us to convert $ into Pesos when the payment is due.
PV = 11ea7e54_8d11_d4c5_ba34_c38c01069513_TB1620_11 = $484,501.58
Here we convert $ into Pesos today and then invest them at the Argentine rate of 6.5% until the payment is due. Please note that these two amounts are approximately equal. Any difference is the result of rounding in the quoted exchange rates.

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