Cross Rate and Forward Rate Biscayne Co. will be receiving Mexican pesos today and will need to convert them into Australian dollars. Today, a U.S. dollar can be exchanged for 10 Mexican pesos. An Australian dollar is worth one-half of a Ăœ.S. dollar. What is the spot rate of a Mexican peso in Australian dollars? Assume that interest rate parity exists and that the annual risk-free interest rate in the United States, Australia, and Mexico is 7 percent. What is the one year forward rate of a Mexican peso in Australian dollars?

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 49QA
Textbook Problem

Cross Rate and Forward Rate Biscayne Co. will be receiving Mexican pesos today and will need to convert them into Australian dollars. Today, a U.S. dollar can be exchanged for 10 Mexican pesos. An Australian dollar is worth one-half of a Ăœ.S. dollar.

  1. What is the spot rate of a Mexican peso in Australian dollars?
  2. Assume that interest rate parity exists and that the annual risk-free interest rate in the United States, Australia, and Mexico is 7 percent. What is the one year forward rate of a Mexican peso in Australian dollars?

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