An investor is planning to borrow 1 million U.S. dollars at an annual interest rate of 3.512%, and invest in Argentine peso at an annual interest rate of 24.28% for one year. The current exchange rate is USDARS 20.31. The investor is also planning to buy a one-year U.S. dollars forward contract for Argentine peso, which is currently quoted at 4.2312 forward points. (One forward point is one point.)
a. Calculate the return of this investment.
b. Calculate the break-even number of forward points of the one-year U.S. dollar-Argentine peso forward contract, i.e. the number of forward points that makes the return (or profit) of this investment zero.
c. Calculate the break-even annual borrowing interest rate in the U.S. dollar, i.e. the U.S. dollar interest rate that makes the return (or profit) of this investment zero.
d. Calculate the break-even annual lending interest rate in the Argentine peso, i.e. the Argentine peso interest rate that makes the return (or profit) of this investment zero.