The one-year Mexican interest rate is 9 percent, while the one-year US interest rate is 3 percent. Suppose there is interest rate parity. If the United States uses the forward exchange rate to forecast the one-year peso exchange rate, the expected effective return from investing in a one-year deposit in Mexico is? Show the work and discuss.

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Interest rate parity is a theory in international finance that suggests that the difference in inter... View the full answer