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IRP The one - year risk - free interest rate in Mexico is 1 0 percent. The one - year risk - free rate in
IRP The oneyear riskfree interest rate in Mexico is percent. The oneyear riskfree rate in the United States is percent. Assume that interest rate parity exists. The spot rate of the Mexican peso is $
a What is the forward rate premium?
b What is the oneyear forward rate of the peso?
c Based on the IFE, 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.
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