The current indirect exchange rate is 12 pesos per dollar. The anticipated annual inflation rate is 5% in the United States and 5% in Mexico
If the cash inflow in pesos is 50,000 in one year, what are the 50,000 pesos worth in U.S. dollars after conversion from pesos to dollars using the forward exchange rate?
A) $4,165.67
B) $4,166.67
C) $4,168.67
D) $4,169.67
Answer: B
Explanation: B) First, we compute the forward exchange rate:
12 pesos per dollar × = 12 pesos per dollar.
Second, we convert all pesos into dollars using the forward exchange rate:
= $4,166.67.
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