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1.16 (Ch. 8) Deriving Forecasts of the Future Spot Rate. As of today, assume the following information is available: U.S. Mexico Real rate of interest

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1.16 (Ch. 8) Deriving Forecasts of the Future Spot Rate. As of today, assume the following information is available: U.S. Mexico Real rate of interest required by investors 1% 1% Nominal interest rate 2% 6% Spot Rate (S.) 056 USD/MXN One-year forward rate (Ft,1-yr) .052 USD/MXN a. Use the forward rate to forecast the percentage change in the USD/MXN over the next year. b. Use the differential in expected inflation to forecast the percentage change in the USD/MXN over the next year. (Hint: you can get the expected inflation using Fisher's formula -i.e., the nominal interest rate is equal to the real interest rate plus expected inflation.) c. Use the spot rate to forecast the percentage change in the USD/MXN over the next year

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