. If investors in the United States and Mexico require the same real interest rate, and the nominal rate of interest is 3 percent higher in Mexico, what does this imply about expectations of U.S. inflation and Mexican inflation? What do these inflationary expectations suggest about future exchange rates?

2. Assume that St = 1.30 GBPUSD. How will this spot rate adjust after one year according to PPP if the United Kingdom experiences an inflation rate of 2% while the U.S. experiences an inflation rate of 1%?

3. Assume that the spot exchange rate of the South African rand (ZAR) is USD .06. The 180-day interest rate (annualized) is 1% in the United States and 6% in South Africa. What will the spot rate ZARUSD be in 6 months, according to the IFE? (You may use the approximate formula to answer this question.)