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| Assume that interest rate parity exists. Also assume that you have payables in Argentine pesos. You have noticed that historically, the forward rate of the Argentine peso quoted by the banks exhibits a large discount. Write a short essay on the likely reason why the peso exhibits a discount over time. Does the discount mean that the forward rate is underpriced (that is, the bank should quote a higher forward rate)? Do you think that you may be more likely to hedge your payables when the Argentine peso exhibits a more pronounced discount? Explain. |
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