Grift C0 is based in a country whose currency is the dollar (\$). The company has legal expenses in a foreign country, Farnland, whose currency is the peso. These legal expenses of 26 million pesos must be paid within the next six months. Exchange rates available to the company are as follows: The peso/dollar exchange rate has been volatile recently and the finance director of Grift Co is wondering whether a lead payment might be better than hedging the payment of legal expenses with a six-month forward exchange contract. Grift Co has bank loans in the foreign country with a nominal value of 500 million pesos that are split equally between fixed rate and variable rate debt. The company has no assets generating interest rate income. The finance director is concerned about the interest rate risk associated with these bank loans. Which of the following statements about forecasting exchange rates is/are correct? (1) The international Fisher effect suggests that changes in exchange rates are matched by changes in real interest rates (2) Under purchasing power parity, changes in domestic inflation rates are balanced in the longer term by changes in exchange rates Both 1 and 2 1 only Nelther 1 nor 2 2 only