Textbook Problem

Implications of PPP Today’s spot rate of the Mexican peso is $0.10. Assume that purchasing power parity holds. The U.S. inflation rate over this year is expected to be 7 percent, whereas Mexican inflation over this year is expected to be 3 percent. Wake Forest Co. plans to import products from Mexico and will need 20 million Mexican pesos to pay for those imports in one year. Determine the expected amount of dollars to be paid by Wake Forest Co. for the pesos in one year.