Suppose that one year ago the Government in Mexico has announced to keep the par value of the Peso against the US Dollar at 5, with the commitment to maintain the value of the Peso against the US dollar within a band of 3% of its par value. In the last two months, demand for US dollars in Mexico has been very strong, and the market value of the US Dollar has been exceeding the +3% upper band. The press reports that the Government and the Central Bank of Mexico are having a series of meetings to decide on a change on the par value of the Peso against the US Dollar. As a rational investor.... you should buy US Dollars today (for a maximum of Pesos 5.15), and sell them back for Pesos at the expected higher par value in the future you should sell US Dollars today (for a maximum of Pesos 5.15) and buy Dollars back at the expected higher par value in the future CH you should sell US Dollars today (for a maximum of Pesos 4.85), and buy Dollars back at the expected higher future par value you should buy US Dollars today for any price greater than 5 25 Pesos, and sell them in the future back for Pesos only if the Par Value is unchanged. If it is raised, hold on to your Dollars

Suppose that one year ago the Government in Mexico has announced to keep the par value of the Peso against the US Dollar at 5, with the commitment to maintain the value of the Peso against the US dollar within a band of 3% of its par value. In the last two months, demand for US dollars in Mexico has been very strong, and the market value of the US Dollar has been exceeding the +3% upper band. The press reports that the Government and the Central Bank of Mexico are having a series of meetings to decide on a change on the par value of the Peso against the US Dollar. As a rational investor.... you should buy US Dollars today (for a maximum of Pesos 5.15), and sell them back for Pesos at the expected higher par value in the future you should sell US Dollars today (for a maximum of Pesos 5.15) and buy Dollars back at the expected higher par value in the future CH you should sell US Dollars today (for a maximum of Pesos 4.85), and buy Dollars back at the expected higher future par value you should buy US Dollars today for any price greater than 5 25 Pesos, and sell them in the future back for Pesos only if the Par Value is unchanged. If it is raised, hold on to your Dollars

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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