Assume that the Mexican peso currently trades at 12 pesos to the U.S. dollar. Du
ID: 2534024 • Letter: A
Question
Assume that the Mexican peso currently trades at 12 pesos to the U.S. dollar. During the year U.S. inflation is expected to average 3?%, while Mexican inflation is expected to average 5?%. What is the current value of one peso in terms of U.S.? dollars? Given the relative inflation? rates, what will the exchange rates be 1 year from? now? Which currency is expected to appreciate and which currency is expected to depreciate over the next? year?
The current value of one Mexican peso in terms of U.S.? dollars, US$, is ?US$ nothing
Explanation / Answer
Current value of one Mexican Peso = $1/12 pesos $0.0833 Expected rate = 12 × (1.05/1.03) 12.233 Peso Mexican Peso Depreciated US Dollar Appreciated