Task: Deriving Forecasts of the Future Spot Rate
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As of today, assume the following information is available .
|
|
|
|
US Dollars |
Mexico |
| Rate of interest required by investors |
2% |
2% |
| Nominal interest rate |
|
|
11% |
15% |
| Spot Rate |
|
|
|
- |
$0.20 |
| One year forwar rate |
|
|
- |
$0.19 |
1) Use the forward rate to forecast the percentage change in the Mexican peso over the next year.
2) Use the differential in expected inflation to forecast the percentage change in the Mexican peso over the next year