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.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 7, Problem 41QA
Textbook Problem

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.

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