Question

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.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

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.
Assume the following information:      Spot rate of Mexican peso                    = $0.1      180‑day forward...
Assume the following information:      Spot rate of Mexican peso                    = $0.1      180‑day forward rate of Mexican peso = $0.098      180‑day Mexican interest rate               = 6%      180‑day U.S. interest rate                    = 5% Given this information, is covered interest arbitrage worth­while for Mexican investors who have pesos to invest? Assume you have MXP1,000,000 as your initial investment. Explain your solution.
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...
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...
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?
1. Suppose the spot rate is $0.115 per Mexican peso and the forward rate is $0.109...
1. Suppose the spot rate is $0.115 per Mexican peso and the forward rate is $0.109 per peso. The 3 month Mexican interest rate (annualized) is 18% and the 3 month US interest rate (annualized) is 5%. Is there an arbitrage opportunity here? If not, explain how you know. If so, how much could a US investor earn in 3 months in the US versus 3 months in Mexico (starting with $100,000)? How about a Mexican investor with 750,000 pesos...
Suppose a U.S. firm buys $200,000 worth of stereo speaker wire from a Mexican manufacturer for...
Suppose a U.S. firm buys $200,000 worth of stereo speaker wire from a Mexican manufacturer for delivery in 60 days with payment to be made in 90 days (30 days after the goods are received). The rising U.S. deficit has caused the dollar to depreciate against the peso recently. The current exchange rate is 5.50 pesos per U.S. dollar. The 90-day forward rate is 5.45 pesos/dollar. The firm goes into the forward market today and buys enough Mexican pesos at...
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.
Today’s 30 day forward rate is $.50 = DM 1. A U.S. speculator (who wants any...
Today’s 30 day forward rate is $.50 = DM 1. A U.S. speculator (who wants any profits to be in $) expects the spot rate after one month to be $.45 = DM 1. a. What actions would the speculators take so as to make expected profits positive at the end of 30 days?                                                      (2 pts)    b. What would the outcome be if the speculator acted as in (a) above and the actual spot rate in 30 days turned...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT