QUESTION 8 Suppose the 1-year interest rate is 0% in US and 5% in Mexico. The cu

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QUESTION 8 Suppose the 1-year interest rate is 0% in US and 5% in Mexico. The current exchange rate between dollar and peso is 20peso/s. What is the 1-year forward rate between dollar and peso: 21 peso per $ 15 peso per $ 10 peso per $ 25 peso per$ QUESTION 9 A FX trader has $1 million to trade with the following information: the current spot X-rate is 106yen/$, the 180- day forward rate is 103·5yen/S, the dollar interest rate is 8% per year (APR) and the Yen interest rate is 4% per year (APR). How much profit can this FX trader make? $2319 $0 $4638 $6957 QUESTION 10 Which of the following is not a potential explanation of the Peso Problem: CIP fails to hold Expected exchange rate appreciation differs from actual rate of appreciation Investors are risk-averse

Explanation / Answer

8. The right answer is option 1. 21 Peso per $

Explanation: The current exchange rate is 20 Peso per $. Interest rate in US is 0% and in Mexico is 5%. So, the forward rate between peso and dollar will be = (20 * 1.05) Peso per $ = 21 Peso per Dollar.

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