Final answer:
A U.S.-based company, like Quartzite Inc., would navigate the spot rate market for the Mexican Peso by paying the current exchange rate at the time of the transaction, which may fluctuate based on supply and demand shifts due to investors' expectations.
Step-by-step explanation:
The question pertains to the exchange rate market for Mexican Pesos (MXN) and how a U.S.-based company like Quartzite Inc. would navigate a transaction based on the current spot rate. When a company needs to purchase currency on the spot market, it pays the current exchange rate. In the scenario provided, if the equilibrium exchange rate is $0.10 per Mexican Peso as indicated in Figure 7(b), Quartzite Inc. would pay 10 cents for every peso they buy on the spot date they execute the transaction. The exact amount Quartzite must pay would depend on the quantity of pesos they need, and they would pay on the date of the transaction. Moreover, any shifts in demand or supply, due to investors’ expectations about future exchange rates, could affect the rate at which Quartzite Inc. buys pesos. For example, if there is a greater demand for pesos because of expectations that the peso will strengthen in the future, the exchange rate for pesos would appreciate immediately. This means Quartzite Inc. may pay more per peso if they purchase after such announcements.