Assume that a U.S. firm can invest funds for one year in the U.S. at 12% or invest funds in Mexico at 14%. The spot rate of the peso is $.10 while the one-year forward rate of the peso is $.10. If U.S. firms attempt to use covered interest arbitrage, what forces should occur?
A) spot rate of peso increases; forward rate of peso decreases.
B) spot rate of peso decreases; forward rate of peso increases.
C) spot rate of peso decreases; forward rate of peso decreases.
D) spot rate of peso increases; forward rate of peso increases.
Correct Answer:
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Q1: Assume the following information:
Q2: Assume the following bid and ask
Q4: Assume that Swiss investors are benefiting from
Q5: If interest rate parity exists, then _
Q6: When using _, funds are not tied
Q7: Assume that the U.S. investors are benefiting
Q8: If the interest rate is higher in
Q9: Based on interest rate parity, the larger
Q10: Assume the following information:
You have $1,000,000
Q11: When using _, funds are typically tied
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