Hedging Decision You believe that IRP presently exists. The nominal annual interest rate in Mexico is 14 percent, whereas the nominal annual interest rate in the United States is 3 percent. You expect that annual inflation will be about 4 percent in Mexico and 5 percent in the United States. The spot rate of the Mexican peso is $0.10. Put options on pesos are available with a one-year expiration date, an exercise price of $0.1008, and a premium of $0.014 per unit. You will receive 1 million pesos in one year.
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