What is six month forward rate where there is no arbitrage

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Reference no: EM131974735

Assume the risk-free rate in the U.S. is 2% (annualized) and the risk-free rate in Mexico is 7.5% (annualized). If you borrow $100,000 at the U.S. risk-free rate, exchange into Mexican pesos at the spot rate and invest at the Mexican risk-free rate for 6 months,

What is your return if the MXN/USD rate in 6 months is the same as today’s rate?

Show the steps for how you could try to make money from the situation where the 6 month forward MXN/USD rate = the spot rate

What is the 6 month forward rate where there is no arbitrage?

Reference no: EM131974735

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