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1. Suppose the current exchange rate is MXN 18.18 and the expected inflation in the US and Mexico are 1.5% and 15% respectively. a. Calculate

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1. Suppose the current exchange rate is MXN 18.18 and the expected inflation in the US and Mexico are 1.5% and 15% respectively. a. Calculate the PPP implied exchange rate of USD/MXN b. What is the expected change in the value of USD? c. What is the expected change in the value of the Mexican Peso (MXP) d. Suppose in year the USD/MXN rate is MXN25; is MXN under or overvalued? How much? Calculate the percentage under or overvaluation

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