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Suppose interest rate on dollar deposits is 2% and interest rate on Mexican Peso is 9% for a given year. If current spot rate is

Suppose interest rate on dollar deposits is 2% and interest rate on Mexican Peso is 9% for a

given year. If current spot rate is 17.54 peso/$.

1.) What is the expected exchange rate a year from now if Uncovered Interest Parity holds?

2.) Calculate the forward premium assuming both Uncovered Interest Parity and Covered

Interest Parity hold or strong?

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