Use the Following Information to Answer the Question(s) Below

question 7

Multiple Choice

Use the following information to answer the question(s) below.
Rearden Metal, a U.S. manufacturer, has made a purchase of from d'Anconia Copper and is expecting a cash outflow of 2 million ARS (Argentine Pesos) in six months. The currency spot rate is $0.2500/ARS and the six-month forward rate is F_6months = $0.2470/ARS. The appropriate annual discount rate for the Argentine Peso is 6.5% and the annual discount rate for the U.S. dollar is 4%.
-What conclusions can you make about the degree of international integration between the U.S.and Argentine markets?

• A) The markets are integrated since the PV of investing dollars today and converting them with a forward contract is less than converting into Pesos today and investing those Pesos for six months.
• B) The markets are integrated since the PV of investing dollars today and converting them with a forward contract is greater than converting into Pesos today and investing those Pesos for six months.
• C) The markets are integrated since the PV of investing dollars today and converting them with a forward contract is approximately equal to converting into Pesos today and investing those Pesos for six months.
• D) The markets are not integrated since the PV of investing dollars today and converting them with a forward contract is greater than converting into Pesos today and investing those Pesos for six months.