Assume the U.S. one-year interest rate is 9 percent, while the Chilean one-year interest rate is 13 percent. If the Chilean peso ____ by ____ percent, a U.S.-based MNC would incur the same financing cost in dollars as in Chilean pesos over a one-year period.

Question

​Assume the U.S. one-year interest rate is 9 percent, while the Chilean one-year interest rate is 13 percent. If the Chilean peso ____ by ____ percent, a U.S.-based MNC would incur the same financing cost in dollars as in Chilean pesos over a one-year period.

Quizplus · Accepted Answer

The interest rate differential is 4% (13% - 9%). To offset this, the Chilean peso must depreciate by approximately 3.54% to equalize the financing costs.

​Assume the U

Assume the U