What is the expected exchange rate in given problem

Reference no: EM131972927

Question: A family in Mexico is planning a vacation to Valley Forge, Pennsylvania, USA six months from now. The current cost of the trip accommodations is $2500. However, the dollar cost of the accommodations would be adjusted to any increase in the U.S. cost of living. Specifically, the U.S. inflation is expected to be 2.2% per year, while Mexican inflation is expected to be 4.8% per year.

Assuming that PPP holds at every point during the year, what is the expected exchange rate six months from now if the Mexican peso presently trades at Ps20.00/$?

Reference no: EM131972927

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