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Amazon has a division in Mexico. Amazon needs to borrow money for its Mexican division and has the choice of borrowing in Mexico or the US. The effective annual interest rate in the US is 5 percent and the interest rate in Mexico is 10 percent. The current exchange rate is 20 Mexican pesos per US dollar. If you believe that the US dollar will depreciate 10 percent against the Mexican peso over the next 6 months, where should Amazon borrow? For simplicity, assume that the company wants to borrow $150 dollars for 6 months.
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