Assume that you obtain a quote for a one-year forward rate on the Argentinian peso. Assume that
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Question:
Assume that you obtain a quote for a one-year forward rate on the Argentinian peso. Assume that Argentina’s one-year interest rate is 50 percent, while the U.S. one-year interest rate is 10 percent. Over the next year, the peso depreciates by 25 percent. Do you think the forward rate overestimated the spot rate one year ahead in this case? Explain.
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