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Problem 2 [Forecasting expected spot exchange rates]: As of today, assume the following information is available: The U.S. The real annual rate of interest required
Problem 2 [Forecasting expected spot exchange rates]: As of today, assume the following information is available: The U.S. The real annual rate of interest required by 2% investors Mexico 2% Annual Nominal interest rate 11% 15% Today in the spot market, one Mexican peso buys 0.20 dollars (SUSD/MXN = USD 0.20/MXN), and the one-year forward rate is $0.19 (FUSD/MXN USD 0.19/MXN). (a) Use the forward rate to forecast the percentage change in the Mexican peso over the next year? What is the appreciation or depreciation of the MXN? (b) Use the differential in expected inflation to forecast the percentage change in the Mexican peso over the next year. What is the appreciation or depreciation of the USD
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