$1.$ The current exchange rate for the Mexican peso is MXN $19\mathrm{.}2450/$USD$.$ The inflation rate for the next

year in Mexico is expected to be $6\%$ while in the U$.$S$.$ it is expected to be $2\%.$

a$.$ If purchasing power parity $($PPP$)$ holds, what should the exchange rate be in one year?

b$.$ If a Mexican firm exporting to the US does not change its USD price, would its MXN revenue increase

or decrease and by how much?

c$.$ If this firm has a USD loan, would the cost of the $3.$ Josie Anderson is a currency speculator. She currently is anticipating that the British pound will

appreciate against the USD. The current spot rate is $$1\mathrm{.}3025/$ and Josie believes it will be at $$1\mathrm{.}35/$

in $90$ days. Put and call options with $90-$day maturity are available at a strike price of $$1\mathrm{.}32/$

and a premium of $$\mathrm{.}003/.$

a$.$ Should Josephine buy a put or a call option?

b$.$ If the spot rate is $$1\mathrm{.}35/$ in $90$ days what will be her net profit or loss per $?$

c$.$ If the spot rate is $$1\mathrm{.}30/$ in $90$ days what will be her net profit or loss per $?$

loan in MXN increase or decrease and by how much?