Question
Inflation is expected to be 5% in Mexico and 8% in Argentina. The future MEX/ARS is expected to be 2.7 (ie 1 Mexican peso =
Inflation is expected to be 5% in Mexico and 8% in Argentina. The future MEX/ARS is expected to be 2.7 (ie 1 Mexican peso = 2.7 Arg. Pesos).
a) Based on these two expected inflation rates, which of the two currencies is supposed to depreciate and why?
b) Using the relative PPP formula, compute what the current exchange rate for MEX/ARS should be
PPP= Purchasing Power Parity
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Personal Finance
Authors: Jack Kapoor, Les Dlabay, Robert J. Hughes, Arshad Ahmad, Jordan Fortino
6th Canadian edition
1259453146, 978-1259453144
