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Suppose that the Mexican pesos forward rate currently exhibits a premium of 3 percent (relative the U.S. dollars) and that interest rate parity (IRP) exists.
Suppose that the Mexican pesos forward rate currently exhibits a premium of 3 percent (relative the U.S. dollars) and that interest rate parity (IRP) exists. If U.S. interest rates decrease while Mexican interest rates stay the same, how should we expect the pesos forward rate premium to change (assuming that interest rate parity continues)? Please explain your responseno calculations are needed for this question. (6points)
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