Consider the exchange rates of Canada and Mexico (with respect to the United States) over period t to 1+1. S(CAD/USD) S(

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Consider The Exchange Rates Of Canada And Mexico With Respect To The United States Over Period T To 1 1 S Cad Usd S 1 (53.28 KiB) Viewed 17 times

Consider the exchange rates of Canada and Mexico (with respect to the United States) over period t to 1+1. S(CAD/USD) S(MXP/USD) t 1.25 20.20 1+1 1.12 20.46 Note: CAD stands for Canadian dollar, MXP stands for Mexican peso, and USD stands for United States dollar. (a) What is the cross rate between Mexico and Canada, S(MXP/CAD), at time ? (3 Marks) (b) Assume no transaction costs. If the market spot rate between Mexico and Canada, S(MXP/CAD), at time is 16.16, is there an arbitrage opportunity? If so, calculate the profits. (3 Marks) (e) Now look at the exchange rates over the period t to t+1. Has the United States depreciated or appreciated against Canada and Mexico? Calculate the percentage change in the exchange rates. (4 Marks) (d) Assume no transaction costs. If the market spot rate between Mexico and Canada, S(MXP/CAD), at time 1+1 is 18, is there an arbitrage opportunity? If so, calculate the profits. (10 Marks) TOTAL: 20. MARKSI