You have gathered the following information:

Norway 6-month interest rate = 0.50% 

Mexico 6-month interest rate = 3.00% 

Norway spot rate = $ 0.1187 per kroner

 Mexico spot rate = $ 0.0482 per peso 

You forecast the spot rates to remain unchanged over the next 6 months, and you can borrow either $500,000, 5 million Norwegian kroner, or 10 million Mexican pesos. Demonstrate the process of carry trade to determine the expected speculative profit in U.S. dollars. 

What is the profit if the MXP depreciates to $0.0404 in 6 months, instead of remaining unchanged? 

Answer rating: 100% (QA)

To determine the expected speculative profit in USD we can use the concept of carry trade which invo... View the full answer