Q6. (25pts total).In early December 1994, the Mexican peso was trading at $ 0.30/peso.At the time, the 3month peso interest rate was 16%annuallyin Mexico, 6% annually in the U.S.Since January 1994, when the peso was trading at $ 0.33/peso, inflation had totaled 20% in Mexico, 3% in the U.S.

Three months later, in March 1995, following the peso crisis, the exchange rate was $ 0.20/peso.

Assume that covered interest parity (CIP) held at all times with no transaction costs.(Show your calculations!)

d)(5 pts).Now assume that the Relative Purchasing Power Parity (RPPP) holds so that real exchange rates are constant. What nominal exchange rate in early December 1994 would have restored January 1994 level of the real exchange rate for the dollarpeso?