Shares of Telefonos Mexicanos (Telmex) listed on the New York Stock Exchange fell from US$60 to US$48 when the Mexican peso (MXN)

was devalued on December 19, 1994, from MXN3.44 to MXN 6. 05 = $1.

a. As a trader for Barings Securities specializing in Mexican stocks, do you see profit opportunities? Show through a simple numerical example how the trader could take advantage of the peso devaluation.

b. What are the risks involved? Telmex stock is traded simultaneously on both the New York Stock Exchange in U.S. dollars and on the Bolsa (Mexican Stock Exchange) in pesos.