Question

1. According to the following table, do the investors believe that the $ will be more or less valuable against the Peso in 3 months?

in $                              per $

Peso                                   0.0687                         14.5560

1 month forward               0.0500                         20.0000

3 month forward               0.0690                         14.4928

6 month forward               0.0556                         17.9856

2. Do the investors believe that the Peso will appreciate or depreciate against the $ in 1 month?

Answer 1

The dollar seems to depreciate and the Pesos seems to appreciate in 3 - months because,

Spot rate is :

$/pesos = 0.0687

Pesos/dollar = 14.5560

1. Now, after 3 months the exchange rates are :

$/pesos = 0.069

pesos/ dollars = 14.4928,

So, before 1 dollar could purchase 14.556 pesos,

now 1 dollar can purchase 14.4928 pesos

so, dollar has depreciated and Pesos has appreciated. So, dollars will be less valuable in 3 months.

2. After 1 - month,

The rates are :

$/pesos = 0.05

Pesos/dollars = 20,

earlier, 1 dollar could purchase 14.5560 pesos, now after 1 month 1 $ can purchase 20 Pesos. So, the dollar has appreciated and Pesos have depreciated also 1 pesos could purchase 0.0687 dollar now 1 peso can purchase only 0.05 dollars . So, pesos have depreciated.