Question

Suppose annual inflation rates in the u.s. and mexico are expected to be 1% and 80%, respectively, over the next several years. if the current spot rate for the mexican peso is 0.002 $ /ps, then relative purchasing power parity suggests that the peso’s value in 3 years will be approximately ______.

Answer 1

The answer to this question is $0.00102. Suppose annual inflation rates in the United States and in the Mexico are expected to be 1% and 80%, respectively, over the next several years. if the current spot rate for the Mexican peso is 0.002 $ /ps, then the relative purchasing power parity suggests that the peso’s value in 3 years will be approximately $0.00102.