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Suppose annual inflation rates in Mexican pesos (MXN) and euros (EUR) over the next several years are expected to be p(MXN) = 6% and p(EUR)
Suppose annual inflation rates in Mexican pesos (MXN) and euros (EUR) over the next several years are expected to be p(MXN) = 6% and p(EUR) = 1%. The current spot rate is S0(MXN/EUR) = MXN 24.00/EUR. Relative purchasing power parity based on the cross-currency inflation differential predicts that the value of the euro in four (4) years will be S4(MXN/EUR) = ____.
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