Ask Question
17 May, 18:25

Assume that interest rate parity holds. The U. S. five‑year interest rate is 5% annualized, and the Mexican five‑year interest rate is 8% annualized. Today's spot rate of the Mexican peso is $.20. What is the approximate five‑year forecast of the peso's spot rate if the five‑year forward rate is used as a forecast?

+2
Answers (1)
  1. 17 May, 21:32
    0
    Using equation

    F=P (1+i) ^n

    n=5

    using u. s forecast i=0.05

    p=$0.2

    F=0.2 (1+0.05) ^5

    F=$0.255

    Using mexican forecast, we will have

    i=0.08

    F=$0.2938

    Taking average approximate forecast=0.2938+0.255/2=$0.2744
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Assume that interest rate parity holds. The U. S. five‑year interest rate is 5% annualized, and the Mexican five‑year interest rate is 8% ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers