Today, the one-year U. interest rate is 3%, while the one-year interest rate in Mexico is 8%. The spot rate of the Mexico peso (MXP) is $.

Today, the one-year U.S. interest rate is 3%, while the one-year interest rate in Mexico is 8%. The spot rate of the Mexico peso (MXP) is $.08 The one-year forward rate of the MXP exhibits a 11% discount. Determine the yield (percentage retrun on investment) to an investor from Mexico who engages in covered interest arbitrage.

Ans Yield (percentage retrun on investment) to an investor from Mexico who engages in covered interest arbitrageUS $/MXP (S)US $/MXP (1 yr F)rMXP (%)rUS $ (%) 0.0800.07128%3% As per IRP,US…