Assume the following rates apply and further, assume that interest rate parity exists.
		U.S.	Mexico
	One year risk-free interest rate	2%	10%
	Spot rate	-----	$0.14
a. What is the forward rate premium?
b. What is the one-year forward rate of the peso?
c. Based on the international Fisher effect, what is the expected change in the spot rate over the next year?
d. If the spot rate changes as expected according to the IFE, what will be the spot rate in one year?
e. Compare your answers to (b) and (d) and explain the relationship.
a	Using IRP, Forward premium (p) =
b	Expected forward rate for the euro		$/euro
c	Using IFE, expected spot rate in one year =
d	expected spot rate in one year =		$/euro
e