Question Details

The spot rate of the Mexican peso 



1. Covered Interest Arbitrage. Evansville, Inc., has $2 million in cash available for 90 days. It is
considering the use of covered interest arbitrage, since the euro- 90-day interest rate is higher
than the U.S. interest rate. What will determine whether this strategy is feasible?

2. Effective Yield. Fort Collins, Inc., has $1 million in cash available for 30 days. It can earn 1% on
a 30-day investment in the U.S. Alternatively, if it converts the dollars to Mexican pesos, it can
earn 1 1/2% on a Mexican deposit. The spot rate of the Mexican peso is $.12. The spot rate 30
days from now is expected to be $.10. Should Ft. Collins invest its cash in the U.S. or in Mexico?
Substantiate your answer.


Business Management Assignment Help, Business Management Homework help, Business Management Study Help, Business Management Course Help