Current Mexican peso price level is 2,027. Current US price level is 105. Expected annual US inflation is 4.5%, expected annual Mexican inflation is 5.6%. Keep 4 decimal points.

1. 1. Determine spot exchange rate USD/PESO.
2. 2. What will be 1-year forward exchange rate?
3. 3. What does this rate suggest about the expectations of investors regarding the strength of US dollar relative to Mexican peso
4. 4. Check if PPP holds.

Answer rating: 100% (QA)

Mexican peso price levelCurrent US price level 2027 Peso105 USD 1 USDPeso 19304... View the full answer