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Agrimex, S.A., a Mexican corporation, borrowed $1,000,000 in dollars at a 15% interest rate when the exchange rate was 25 pesos per dollar. When the company repaid the loan plus interest one year later, the exchange rate was 40 pesos to the dollar.
a) What was the rate of interest on the loan based on the pesos received and paid back by Agrimex?
b) Use the interest rate parity theorem to illustrate this result.