Question

a. Assuming that interest rate parity exists, do you think hedging with a forward rate would...

a. Assuming that interest rate parity exists, do you think hedging with a forward rate would be beneficial if the spot rate of the Mexican peso was expected to decline slightly over time?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Yes, because if you hedge with a forward rate you may benefit as it is always beneficial to invest at higher interest rates in order to gain more profit. Also, lower interest rates are not attractive and thus reduces the value of the currency. As mentioned, if spot rates are expected to decline, it would be better to opt for forward rate.

Forward rate is a rate at which transaction would be carried out on a future date.

Spot rate is a rate which is determined on the spot date and carried out in two working days usually.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assume the following information: - Mexican one - year interest rate = 6% - U.S ....
Assume the following information: - Mexican one - year interest rate = 6% - U.S . one- year interest rate = 3% - Peso spot rate = 0.11 $/p - peso forward rate = 0.08 $/p interest rate parity exists, how do you take advantage of this opportunity ? explain please.
If you are a U.S. importer of Mexican goods and you believe that today’s forward rate...
If you are a U.S. importer of Mexican goods and you believe that today’s forward rate of the peso is a very accurate estimate of the future spot rate, do you think Mexican peso call options would be a more appropriate hedge than the forward hedge? Explain.
Assume the following information: ♦ Mexican one-year interest rate = 9 % ♦ U.S. one-year interest...
Assume the following information: ♦ Mexican one-year interest rate = 9 % ♦ U.S. one-year interest rate = 4 % ♦ Peso spot rate = 0.11 $/p ♦ Peso forward rate = 0.08 $/p If interest rate parity exists, how much money you can make per each unit. For example, if one can make $0.0303 per peso
Assume the following information: 1- Mexican one-year interest rate =11% 2- U.S one-year interest rate =...
Assume the following information: 1- Mexican one-year interest rate =11% 2- U.S one-year interest rate = 4% 3- Peso spot rate = 0.13 $/p 4- Peso forward rate = 0.07 $/p if interest rate parity exists, how much money you can make per each unit. For example, if one can make $0.0303 per peso, type 0.0303 in the box below.
You believe that IRP presently exists. The nominal annual interest rate in Mexico is 14%. The...
You believe that IRP presently exists. The nominal annual interest rate in Mexico is 14%. The nominal annual interest rate in the U.S. is 3%. You expect that annual inflation will be about 4% in Mexico and 5% in the U.S. The spot rate of the Mexican peso is $.10. Put options on pesos are available with a one-year expiration date, an exercise price of $.105, and a premium of $0.014 per unit. You will receive 1 million pesos in...
Question 1(25 marks) (a) Assume the following information: Spot rate of £ = $1.60 180-day forward...
Question 1 (a) Assume the following information: Spot rate of £ = $1.60 180-day forward rate of £ = $1.59 180-day British interest rate = 4% 180-day U.S. interest rate = 3% Based on this information, is covered interest arbitrage by U.S. investors feasible (assuming that U.S. investors use their own funds ($1 million))? Explain. (b) Covered Interest Arbitrage in Both Directions. The one-year interest rate in New Zealand is 6 percent. The one-year U.S. interest rate is 10 percent....
3. You believe that IRP presently exists. The nominal annual interest rate in Mexico is 14%....
3. You believe that IRP presently exists. The nominal annual interest rate in Mexico is 14%. The nominal annual interest rate in the U.S. is 3%. You expect that annual inflation will be about 4% in Mexico and 5% in the U.S. The spot rate of the Mexican peso is $.10. Put options on pesos are available with a one-year expiration date, an exercise price of $.108, and a premium of $0.01 per unit. You will receive 12 million pesos...
Assume that Calumet Co. will receive 10 million pesos in 15 months. It does not have...
Assume that Calumet Co. will receive 10 million pesos in 15 months. It does not have a relationship with a bank at this time, and therefore cannot obtain a forward contract to hedge its receivables at this time. However, in three months, it will be able to obtain a one-year (12-month) forward contract to hedge its receivables. Today the three-month U.S. interest rate is 3% (not annualized), the 12-month U.S. interest rate is 8%, the three-month Mexican peso interest rate...
Assume there exists a forward foreign exchange market in Ghana and this market has the based...
Assume there exists a forward foreign exchange market in Ghana and this market has the based on the information characteristics below. Assuming there is interest rate parity; calculate UK 90-day interest rate per annum based on the information below. 90 day interest rates (Ghana) …….13% p.a 90 day interest rates (UK) ………….? p.a Spot rate…………………………..GHS 6.1000/£ 90 day forward rate………………..GHS 6.1200/£ Assume that the Nigerian Naira exhibits a 6-month interest rate of 12 percent p.a while the U.S. dollar exhibits...
(Uncovered interest parity) What is the relationship among the forward exchange rate, the spot exchange rate,...
(Uncovered interest parity) What is the relationship among the forward exchange rate, the spot exchange rate, and the interest rate? Suppose the (1-year) interest rate on bank deposits is 2% in Canada and 1.5% in United States. If the (1-year) forward US$–C$ exchange rate is C$1.5 per US$ and the spot rate is C$1.2 per US$, what is the expected US$–C$ exchange rate one year ahead?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT