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US interest rate is 2% and Mexico interest rate is 5%. Holding everything else equal,...

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Finance

US interest rate is 2% and Mexico interest rate is 5%. Holding everything else equal, which one of the following statements is true about exchange rate between Mexican Peso and US Dollar?

Question 5 options:

Peso will depreciate against Dollar in the long run according to Interest Rate Parity (IRP).

Exchange rate will stay the same in the long run according to Purchasing Power Parity (PPP).

Peso will appreciate against Dollar in the long run according to Interest Rate Parity (IRP).

Peso will appreciate against Dollar in the long run according to Purchasing Power Parity (PPP).

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