2. There are two countries, Colombia and El Salvador. They produce and trade with each other only one product, Maize. Suppose that the price of Maize is 4.50 pesos per kilo in Colombia, and in Chile it is 3.00 dollars per kilo. a) According to PPP theory, what should the spot exchange rate be for? (test your answer to see if it makes sense) Ans.Ipesos dollars Show why: b) Suppose the price of Maize is expected to rise to 5.0 Pesos in Colombia and to 4.5 dollars in El Salvador. What would Forward exchange rate reflect one year forward between the two currencies? That is, which currency would rise and which would fall relatively? Colombia or El Salvador Select Ans