Show your work and state your answers to four decimal places.

Spot rates of the US Dollar on December 8, 2017

Mexican Peso (MXP) to US Dollar (USD): 18.5369

US Dollar (USD) to British Pound (GBP): 1.3352

Expected inflation rates for the year ending December 8, 2018:

USA: 1.0%, Mexico: 5.5%, UK: 3.5%

Annual interest rates for the year ending December 8, 2018:

USA: 2.0%, Mexico: 6.0%, UK: 4.0%

1. What is the USD/MXP spot rate on December 8, 2017? (2 points)

What is the MXP/GBP spot rate on December 8, 2017? (3 points)

2. If a currency forecaster predicted that the peso would depreciate by 10% against the US dollar by this time next year, what would you expect the MXP/USD rate to be on December 8, 2018? (5 points)

3. Assume that purchasing power parity holds. What would you expect the USD/GBP rate to be on December 8, 2018? (5 points)

4. Assume that interest rate parity holds. What would you expect the MXP/USD rate to be on December 8, 2018? (5 points)