What is the implied peso borrowing rate

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Reference no: EM13730445

You have a line of credit for $1,000,000 at 4% for six months from Bank of America. You need to borrow 10,000,000 Mexican Pesos for six months. The spot FX rate is 13 P/$ and the 6-month forward rate is 13.25 P/$. All interest rates are quoted on an annual basis.

a. What is the implied Peso borrowing rate when you convert a US$ loan into a loan on Mexican Pesos?

b. What transactions would you need to execute in order to convert a US$ loan into a 6-month loan on 10,000,000 Mexican Pesos?

Reference no: EM13730445

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