The spot rate for the Mexican peso is USD/MXN 19.8610. Suppose that the 1-year interest rate in the U.S is 5.10% and the 1-year interest rate in Mexico is 12.17%. The bank is quoting a 1-year forward exchange rate of USD/MXN 23.938. How can you take advantage of any mispricing that exists? A.borrow USD; buy MXN at the spot rate; sell MXN at the forward rate B.borrow USD; sell MXN at the spot rate; buy MXN at the forward rate C.borrow MXN; sell MXN at the spot rate; buy MXN at the foward rate D.borrow MXN; buy MXN at the spot rate; sell MXN at the forward rate

The spot rate refers to the current exchange rate at which a currency can be bought or sold for…

Answered: The spot rate for the Mexican peso is…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The spot rate for the Mexican peso is USD/MXN 19.8610. Suppose that the 1-year interest rate in the U.S is 5.10% and the 1-year interest rate in Mexico is 12.17%. The bank is quoting a 1-year forward exchange rate of USD/MXN 23.938. How can you take advantage of any mispricing that exists?

	A.	borrow USD; buy MXN at the spot rate; sell MXN at the forward rate
	B.	borrow USD; sell MXN at the spot rate; buy MXN at the forward rate
	C.	borrow MXN; sell MXN at the spot rate; buy MXN at the foward rate
	D.	borrow MXN; buy MXN at the spot rate; sell MXN at the forward rate

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