You believe that IRP presently exists. The nominal annual interest rate in Mexico is 14 percent. The
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a. Determine the expected amount of dollars that you will receive if you use a forward hedge.
b. Determine the expected amount of dollars that you will receive if you do not hedge and believe in purchasing power parity (PPP).
c. Determine the amount of dollars that you will expect to receive if you believe in PPP and use a currency put option hedge. Account for the premium you would pay on the put option.
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