Lectures in Macroeconomics- Charles W. Upton Interest Rate Equalization

2 An Issue You are considering investing in Mexico, buying a firm now worth 10,000,000 Pesos. You have been assured that, a year from now, it will be worth 11,000,000 Pesos. Guaranteed. What will be the exchange rate?

Interest Rate Equalization 3 An Issue Today: 1€ = $1 Tomorrow: 1€ = $1.02

Interest Rate Equalization 4 An Issue Today: 1€ = $1 Tomorrow: 1€ = $1.02

Interest Rate Equalization 5 An Issue Today: 1€ = $1 Tomorrow: 1€ = $1.02

Interest Rate Equalization 6 An Issue Today: 1€ = $1 Tomorrow: 1€ = $1.02 Tomorrow: 1€ = $1.01

Interest Rate Equalization 7 An Issue Today: 1€ = $1 Tomorrow: 1€ = $1.02 Tomorrow: 1€ = $1.01 Or: Today: 1€ = $1.01 Tomorrow: 1€ = $1.02

Interest Rate Equalization 8 An Issue Today: 1€ = $1 Tomorrow: 1€ = $1.02 Tomorrow: 1€ = $1.01 Or: Today: 1€ = $1.01 Tomorrow: 1€ = $1.02

Interest Rate Equalization 9 An Issue

Interest Rate Equalization 10 Examples

Interest Rate Equalization 11 Compare and Contrast

Interest Rate Equalization 12 End ©2005 Charles W. Upton. All rights reserved