Assume That Interest Rate Parity Holds

question 7

Multiple Choice

Assume that interest rate parity holds. The U.S. five-year interest rate is 5% annualized, and the Mexican five-year interest rate is 8% 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.

---

Definitions:

Rater Errors

Biases or inaccuracies that occur when individuals are evaluating or assessing others' performances or traits.

Performance Appraisals

The evaluation of an employee's job performance, typically conducted regularly to assess contributions and determine areas for improvement.

Morning Bias

The tendency for individuals to have improved cognitive functions and mood soon after waking up, affecting their decision-making and productivity.

Negative Stereotype

A harmful or unfavorable generalization about a group of people that lacks individual recognition and is often based on misconceptions.