Assume that the Mexican peso currently trades at 13 pesos to the U.S. dollar. During the year U.S. inflation is expected to average 5%, while Mexican inflation is expected to average 7%. What is the current value of one peso in terms of U.S. dollars? Given the relative inflation rates, what will the exchange rates be 1 year from now? Which currency is expected to appreciate and which currency is expected to depreciate over the next year?

The current value of one Mexican peso in terms of U.S. dollars, US$, is US$__ /MP.