Derive forecasts of the future spot rate

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Reference no: EM13935911

Deriving forecasts of the future spot rate. As of today, assume the following information is available:

	UK	Mexico
Real rate of interest required by investors	2%	2%
Nominal interest rate	11%	15%
Spot rate	-	£0.05
One-year forward rate	-	£0.049

a. Use the forward rate to forecast the percentage change in the Mexican peso over the next year.

b. Use the differential in expected inflation to forecast the percentage change in the Mexican peso over the next year.

c. Use the spot rate to forecast the percentage change in the Mexican peso over the next year.

Reference no: EM13935911

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