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Assume that interest rate parity holds. The U.S. 5-year interest rate is 5% annualized, and the Mexican 5-year interest rate is 8% annualized. Today's spot

Assume that interest rate parity holds. The U.S. 5-year interest rate is 5% annualized, and the Mexican 5-year interest rate is 8% annualized. Today's spot rate of the Mexican peso is $.20.

(1) Calculate the 5-year forecast of the peso's spot rate if the 5-year forward rate is used as a forecast

(2) Identify 3 factors that might cause the forecasted rate to be incorrect

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