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The one-year risk-free interest rate in Mexico is 14 percent. The one-year risk-free rate in the United States is 4 percent Assume that interest rate parity exists. The spot rate of the Mexican peso is $0.13. a. What is the forward rate premium? Use a minus sign to enter a negative value, if any. Round your answer to three decimal places. % b. What is the one-year forward rate of the peso? Do not round intermediate calculations. Round your answer to four decimal places. c. Based on the international Fisher effect, what is the expected change in the spot rate over the next year? Use a minus sign to enter negative value, if any. Round your answer to three decimal places. % d. If the spot rate changes as expected according to the IFE, what will be the spot rate in one year? Do not round intermediate calculations. Round your answer to four decimal places. e. Compare your answers to (b) and (d) and explain the relationship. 1. The answers are different. The calculation of the forward rate is based on the interest rate differential, which is higher than the difference between inflation expectations that are included in the countries' interest rates. Thus, the forward rate exceeds the future spot rate. I1. The answers are the same. When IRP holds, the forward rate premium and the expected percentage change in the spot rate are derived in the same manner. Thus, the forward premium serves as the forecasted percentage change in the spot rate according to IFE. III. The answers are different. The expected percentage change in the spot rate is based on the difference in real interest rates between countries. Since this difference is higher than the forward rate premium, the future spot rate is higher than the forward rate

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