What is the peso problem? O Expectations are realized on average, and returns from interest arbitrage...

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What is the "peso problem"? O Expectations are realized on average, and returns from interest arbitrage are zero. O Even when exchange rates are fixed, investors often demand a premium for interest arbitrage, so the return from arbitrage can be positive or negative. O Pegged currencies are less stressful for investors because there is no room for speculation. O Returns from interest arbitrage are always positive, even when the peg breaks. What is the "peso problem"? O Expectations are realized on average, and returns from interest arbitrage are zero. O Even when exchange rates are fixed, investors often demand a premium for interest arbitrage, so the return from arbitrage can be positive or negative. O Pegged currencies are less stressful for investors because there is no room for speculation. O Returns from interest arbitrage are always positive, even when the peg breaks.

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Ex pect ations are realized on average and returns from interest arbit rage are zero ... View the full answer