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In February 1994, Argentina's currency board was in place, and 1 peso was exchangeable into 1 dollar. The following interest rates were available:
U.S. LIBOR 90 days: 3.25%
Peso 90-day deposits: 8.99%
Dollar interest rate in Argentina, 90-day deposits: 7.10%
The latter two rates were offered by Argentine banks.
What risk does the difference between the 7.10% dollar interest and 3.25% LIBOR reflect?
What risk does the difference between the rate on 90-day pesos and 90-day dollar deposits by Argentine banks reflect?
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