Assume that you are the international cash manager of XYZ Inc. Because your firm exports goods to Mexico, your job as international cash manager requires you to forecast the value of Mexico’s with respect to the dollar. Explain how each of the following conditions will affect the value of the peso, holding other things equal. Then, aggregate all of these impacts to develop an overall forecast of the peso’s movement against the dollar.

a. U.S. inflation has suddenly decreased substantially, while Mexico’ inflation remains low.

b. U.S. interest rates have decreased substantially, while Mexico’s interest rates remain low. Investors of both countries are attracted to high interest rates.

c. The U.S. income level decreased substantially, while Mexico’s income level has remained unchanged.

d. The U.S. is expected to impose a small tariff on goods imported from Mexico.

e. Combine all expected impacts to develop an overall forecast.