Assume the following information:
Spot rate of Mexican peso =$.100
180 day forward rate of Mexican peso = $.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? Explain the answer.© BrainMass Inc. brainmass.com June 3, 2020, 8:45 pm ad1c9bdddf
To answer, begin with an assumed amount of pesos and determine the yield to Mexican investors who attempt ...
This solution calculates the yield to Mexican investors who attempt covered interest arbitrage and explains if it is worthwhile for the investors.