Assume that the forward rate and the spot rate of the Mexican peso are usually similar at a given point in time. Assume that the peso has depreciated consistently and substantially over the last three years. Would the forward rate have been biased over this period? If so, would it typically have overestimated or underestimated the future spot rate of the peso (in dollars)? Explain.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 9, Problem 3ST
Textbook Problem

Assume that the forward rate and the spot rate of the Mexican peso are usually similar at a given point in time. Assume that the peso has depreciated consistently and substantially over the last three years. Would the forward rate have been biased over this period? If so, would it typically have overestimated or underestimated the future spot rate of the peso (in dollars)? Explain.

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