IRP exists.

The nominal annual interest rate in Mexico is 13%. The nominal annual interest rate in the US is 2%

You expect the annual inflation will be about 12% in Mexico and 1% in the US.

The spot rate of the Mexican peso is $0.044 per Mexican peso.

And you will receive 1 million Mexican pesos in one year.

a). Determine the amount of dollars that you will receive if you use forward hedge

b). Determine the expected amount of dollars that you will receive if you USE AN OPTION HEDGE and believe in PPP. Both put options and call options on Mexican pesos are available with one year expiration date with an exercise price of $0.038/MXP and a premium of $0.004/MXP.