Implications of PPP
Response to the following problem:
Today's spot rate of the Mexican peso is $.10. Assume that purchasing power parity holds. The U.S. inflation rate over this year is expected to be 7 percent, while the Mexican inflation over this year is expected to be 3 percent. Wake Forest Co. plans to import from Mexico and will need 20 million Mexican pesos in 1 year. Determine the expected amount of dollars to be paid by the Wake Forest Co. for the pesos in 1 year.