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How much are interest payments as a percentage of gdp

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A country has GDP of 10bn pesos and its government has borrowed 1bn pesos of money domestically and $4bn in U.S. dollars. The exchange rate is $1 = 1 peso. Interest rates are 10% on peso denominated debt and 5% on dollar denominated debt.

(a) What is the debt/GDP ratio?

(b) How much are interest payments as a percentage of GDP?

(c) According to UIP what should happen to the exchange rate?

(d) If the exchange rate goes to $1 = 4 pesos, how do your answers to (a) and (b) change?

Reference no: EM13888035

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