The spot rate of the Mexican peso is $.049. Assume

The spot rate of the Mexican peso is $.049. Assume that purchasing power parity holds. The U.S. inflation rate over this year is expected to be 3%, whereas Mexican inflation over this year is expected to be 7%. A U.S. company plans to import products from Mexico and will need 10 million Mexican pesos in one year.

(1) Calculate the premium or discount;

(2) Calculate the expected spot rate in one year;

(3) Calculate the expected amount of dollars the company will need to pay for the pesos in one year.


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