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What will be the expected exchange rate

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The expected inflation rate until the end of this year, 2021, is 2% in the US, and 12% in Mexico, respectively. The current spot exchange rate as of Feb. 17, 2021, between Mexican peso (MP) and the US dollar is MP 20.19 / $. (Source: https://www.wsj.com/market-data/currencies/exchangerates

-What will be the expected exchange rate between Mexican Peso (MP) and the US dollar at the end of 2021 (approx. 10 months later), based on the above information?

-Explain why.

-Which theory of the FX rate determination do you use for your forecasting?

Reference no: EM132818076

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