1. 1. Bid
2. strike
3. Currency arbitrage
4. Citibank
5. $50M
PART II
TRADE FOREX RATE
X M 2010 2011
US 9.837 8.835 53 43
EUR 9.238 7.987 64.5 66
Step 1: Calculate weights
X+M Weight = (X+M per country)/(total X+M)
US 18.672 0.520155
EUR 17.225 0.479845
35.897
Step 2: Index the forex (base 2010)
Index = forex for current year/forex of base year
2010 2011
US 1 0.811321
EUR 1 1.023256
Step 3: multiply weight and index, sum it up
2010 2011
US 0.520155 0.422012
EUR 0.479845 0.491004
EER 1 0.913017
Step 4: Interpret
Since EER for 2011 is 0.91 <1, the peso is stronger (appreciate)