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I'm not too familiar with the specifics of the Mexican market but I've
arbed foreign rates starting 17 yrs ago. While there may be an
arbitrage opportunity, if you invest in CETES *and* hedge the foreign
exchange exposure, the cost of the hedge (if priced properly, ie no arb
possible) will wipe out any gain from investing in the CETES to begin
with.
You're asking a counterparty to buy back your Mexican Pesos at the end
of the term. To lay off the risk, some players will, theoretically at
least, borrow Pesos and sell them in the spot market and invest the US
dollars. Borrow say at 21%, lend or invest at say 5% and the
difference, say 16% becomes the futures (or forward) contract "cost"
over the spot market wiping out your risk-free profit. No free lunch
sorry.
Unless... when things move quickly, they tend to get a little out of
whack and arbitrage opportunities exist. This type of arb separates the
Quick and the Dead. Not for just anyone.
I hope I've been useful.
Richard.
Randall Kurzon wrote:
> Anybody looked at Mexican CETES yielding about 21% as an investment
> vehicle? Possibly hedging the position with Peso futures?
> Comments/ideas?
>
> Regards, Randall
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