An investor based in the US invests $1,200 in Mexico and this generates a future value in one year of $1,344.44, US. If the interest rate in Mexico is 10% and the future expected exchange rate is Et+1 = 5.4, this implies that the current exchange rate must be O 5.25 5.7 O 4.85 O 5.5

International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
Chapter8: Relationships Among Inflation, Interest Rates, And Exchange Rates
Section: Chapter Questions
Problem 19QA
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An investor based in the US invests $1,200 in Mexico and this generates a future value in one year of $1,344.44, US. If the
interest rate in Mexico is 10% and the future expected exchange rate is Et41 = 5.4, this implies that the current exchange rate
must be
O 5.25
O 5.7
O 4.85
O 5.5
Transcribed Image Text:An investor based in the US invests $1,200 in Mexico and this generates a future value in one year of $1,344.44, US. If the interest rate in Mexico is 10% and the future expected exchange rate is Et41 = 5.4, this implies that the current exchange rate must be O 5.25 O 5.7 O 4.85 O 5.5
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