Assume that you obtain a quote for a one-year forward rate on the Argentinian peso. Assume that Argentina’s one-year interest rate is 50 percent, while the U.S. one-year interest rate is 10 percent. Over the next year, the peso depreciates by 25 percent. Do you think the forward rate overestimated the spot rate one year ahead in this case? Explain.
Assume that you obtain a quote for a one-year forward rate on the Argentinian peso. Assume that Argentina’s one-year interest rate is 50 percent, while the U.S. one-year interest rate is 10 percent. Over the next year, the peso depreciates by 25 percent. Do you think the forward rate overestimated the spot rate one year ahead in this case? Explain.
Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN:9781285165875
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter31: Open-Economy Macroeconomics: Basic Concepts
Section: Chapter Questions
Problem 8PA
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6. Assume that you obtain a quote for a one-year forward rate on the Argentinian peso. Assume that Argentina’s one-year interest rate is 50 percent, while the U.S. one-year interest rate is 10 percent. Over the next year, the peso
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