Question: Assume an offshore FX derivative market is unavailable for Dominican Republic Peso (DOP) and a corporation approaches a commercial bank offshore to sell its DOP revenues and buy USD. Determine the price of a one-year USD DOP FX nondeliverable forward (NDF) under the following assumptions:
• The withholding tax on investing in investments in DOP fixed income instruments is 10 percent.
• The current one-year Dominican Republic treasury bills yield at 9.5 percent.
• The one-year USD dollar rate of 0.40 percent.
• The same convention applies to DOP and USD rates.