. Cross Rate and Forward Rate Biscayne Co. will be receiving Mexican pesos today and will need to convert them into Australian dollars. Today, a U.S. dollar can be exchanged for 10 Mexican pesos. An Australian dollar is worth one-half of a U.S. dollar.
a. What is the spot rate of a Mexican peso in Australian dollars?
b. Assume that interest rate parity exists and that the annual risk-free interest rate in the United States, Australia, and Mexico is 7 percent. What is the 1-year forward rate of a Mexican peso in Australian dollars?