Assume That Interest Rate Parity Holds

question 21

Multiple Choice

Assume that interest rate parity holds. The U.S. five-year interest rate is 5 percent annualized, and the Mexican five-year interest rate is 8 percent annualized. Today's spot rate of the Mexican peso is $.20. What is the approximate five-year forecast of the peso's spot rate if the five-year forward rate is used as a forecast?

• A) $.131
• B) $.226
• C) $.262
• D) $.140
• E) $.174

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Definitions:

Pulmonary TB

Tuberculosis that affects the lungs, characterized by symptoms such as a persistent cough, weight loss, and fever, requiring long-term antibiotic treatment.

Herpes Simplex

A viral infection characterized by painful blisters, typically manifesting around the mouth (HSV-1) or genital area (HSV-2).

Measles

A highly contagious viral disease marked by symptoms such as fever, cough, and a distinctive red rash, preventable by vaccination.

Chain of Infection

A process that describes how an infectious disease is transmitted from one host to another, involving steps such as a reservoir, mode of transmission, and entry to a susceptible host.