IRP and Speculation in Currency Futures Assume that interest rate parity exists. The spot rate of the Argentine peso is $0.40 . The one-year interest rate in the United States is 7 percent; the comparable rate is 12 percent in Argentina. Assume the futures price is equal to the forward rate. An investor purchased futures contracts on Argentine pesos, representing a total of 1,000,000 pesos. Determine the total dollar amount of profit or loss from this futures contract based on the expectation that the Argentine peso will be worth $0.42 in one year.
Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*
*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.