FIN 565 Week 3 Homework

Course: FIN 565 International Finance Institution: DeVry Contributor: Nicole Format: DOCX/PPTX Pages: 3

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Week 3 Homework Chapter 7) Covered Interest Arbitrage 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% 7) Given this information, is covered interest arbitrage worthwhile for Mexican investors who have pesos to invest? Explain your answer. First we will look at the conversion from peso to dollar and invested at US interest, 100,000 x .100 = 10,000 Then we add the interest gained 10,000 x (1.05)= 10,500 Now we convert back to pesos 10,500/.098 = 107,142.86 Now we

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