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Assume that the following information is available as of today.

U.S. Mexico Real

interest rate 2% 2%

Nominal interest rate - 12%

Spot rate - $0.09

One year forward rate - $0.12

1. Using the relative form of PPP, compute the difference between the expected rate of inflation of U.S. and that of Mexico.

Please explain how do we find the expected rate of inflation in both countries to find the difference.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92415243

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