If Nominal Interest Rates Are 5% in the United States

question 49

Multiple Choice

If nominal interest rates are 5% in the United States and 8% in Mexico,you should convert the expected cash flows on your Mexican project into US dollars:

• A) by assuming that the Mexican peso will appreciate by about 3% a year.
• B) by assuming that the Mexican peso will depreciate by 8% a year.
• C) by assuming that the dollar will appreciate by 5% a year.
• D) by assuming that the Mexican peso will depreciate by about 3% a year.

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Definitions:

Electromagnetic Radiation

Energy that travels through space in the form of waves, encompassing a broad spectrum from radio waves to gamma rays.

Absorption

The process by which one substance takes up or holds another substance at the interface between them or within its internal structure.

Photon Energy

The energy carried by a single photon, proportional to its frequency and inversely proportional to its wavelength.

Vacuum

A space devoid of matter, where the pressure is much less than atmospheric pressure.