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  3. you work for a canadian firm that makes camping la

You work for a Canadian firm that makes camping lanterns that sell for 25 CAD...

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Finance

You work for a Canadian firm that makes camping lanterns that sell for 25 CAD in Canada, and the same lantern sells for 295.50 Mexican Peso (MXN).

  1. What is the implied exchange rate in MXN/CAD? (1 POINT)

  1. Your colleague shared a report on MXNs position relative to CAD, but he forgot to specify if MXN is undervalued or overvalued. The actual exchange rate is 0.08255 CAD/ MXN. Explain in words why you think MXN is undervalued or overvalued. (1 POINT)

  1. By what percentage is the MXN overvalued or undervalued compared to the CAD? (2 POINTS)

  1. The VP of Finance wants to know how your analysis in b) and c) could impact exports to Mexico. She also asks if it is a good idea to import raw materials from Mexico based on your analysis. (2 POINTS)

  1. After one year, the price of the lantern remains the same in Mexico. Assuming that PPP holds, what is the price of the lantern in Canada then? The annual inflation is 2% in Canada while the annual Mexico inflation is 4.5%.

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