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  3. need all of the blanks. thank you! suppose th

need all of the blanks. thank you! Suppose that the...

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Accounting

need all of the blanks. thank you!
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Suppose that the six-month interest rate in the United States is 2%, while the six-month interest rate in Mexico is 3%. Further, assume the spot rate of the peso is $0.20. Suppose that you have $500,000 with which to attempt covered interest arbitrage. Assume the forward rate is $0.19806, as you just calculated, and the interest rates are the same as have been used throughout this problem. To start, you exchange your $500,000 (at the spot rate of $0.20) for 2,500,000peso. After depositing these funds for 6 months, and earning a return of 3%, your deposit grows to 2,575,000peso. When you convert your 2,575,000peso back to dolars, you end up with approximately over your original $500,000 for a profit of about However, had you simply deposited your $500,000 in an account and accrued 2% Interest, you would have for a profit or This example illustrates that covered interest arbitrage domestic account under interest rate parity offer a significantly larger return than simply depositing the funds in a does not does TOTAL SCORE: 2/5 Grade Final Step omstanden med

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