A Mexican firm is thinking about borrowing in USD at 3 percent per year. The spot exchange rate for the Mexican peso (MXN) is 20 MXN /USD. The one-year forward rate is 21 MXN/USD. Suppose you fully hedge the exchange rate risk of the loan. What does the 3 percent interest rate in USD correspond to in MXN?

Answer rating: 100% (QA)

To find the equivalent interest rate in MXN you need to consider the exchange rate risk that you are ... View the full answer