DuPont's cash balance. The treasurer of E.I. DuPont de Nemours has a $500 million cash balance to invest over the next six months. She has been instructed to play it safe and to avoid unduly speculative risks. She has narrowed her options to dollar-denominated P-1 commercial paper yielding 4 percent annually or Mexican peso-denominated certificates of deposit yielding 12 percent annually issued by AAA-rated Banco Mercantil of Mexico. The spot dollar price of one Mexican peso is US$0.080 and a six-month forward peso costs US$0.075. Where should the funds be invested? Is interest rate parity holding?

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v Interest rate parity It is a theorem where Interest rate differential should equal to Excha... View the full answer