You have a line of credit for $1,000,000 at 4% for six months from Bank of America. You need to borrow 10,000,000 Mexican Pesos for six months. The spot FX rate is 13 P/$ and the 6-month forward rate is 13.25 P/$. All interest rates are quoted on an annual basis.
a. What is the implied Peso borrowing rate when you convert a US$ loan into a loan on Mexican Pesos?
b. What transactions would you need to execute in order to convert a US$ loan into a 6-month loan on 10,000,000 Mexican Pesos?