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Current Mexican peso price level is 2,027. Current US price level is 105. Expected annual US inflation is 4.5%, expected annual Mexican inflation is 5.6%.

Current Mexican peso price level is 2,027. Current US price level is 105. Expected annual US inflation is 4.5%, expected annual Mexican inflation is 5.6%. Keep 4 decimal points.

  1. 1. Determine spot exchange rate USD/PESO.
  2. 2. What will be 1-year forward exchange rate?
  3. 3. What does this rate suggest about the expectations of investors regarding the strength of US dollar relative to Mexican peso
  4. 4. Check if PPP holds.

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