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Alpha MNC expects the exchange rate of the Mexican Peso (MXN) to appreciate from its current level of A$0
Alpha MNC expects the exchange rate of the Mexican Peso (MXN) to appreciate from its current level of A$0.063 to A$0.07 in 60 days. Details regarding Australian and Mexican annualised interest rates are given below:
Currency Lending rate Borrowing rate Australian dollar (AS) 5.32% 6.71%
Mexican Peso (MXN) 5.75% 6.82%
What are the 60-day period lending rate for the Mexican peso and the 60-day period borrowing rate for the Australian dollars respectively
A. 0.95% and 1.12%
B. 0.89% and 1.14%
C. 0.48% and 1.12%
D.0.38% and 1.05%
E. None of the above
Expert Solution
Answer:
60 day lending date for peso = Annualized lending rate*60/360
= 5.75%*60/360
= 0.958%
i.e. 0.95% approx.
60 day borrowing rate for Australian dollars = 6.71%*60/360
= 1.118%
i.e. 1.12% approx.
Hence, the answer is A. 0.95% and 1.12%
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