4. The Mexican peso has weakened considerably relative to the dollar, and you are trying to decide whether this is a good time to invest in Mexico. Suppose the current exchange rate of the Mexican peso relative to the U. S. dollar is MXN 9.5/USD. Your investment advisor at Goldman Sachs argues that the peso will lose 15% of its value relative to the dollar over the next year. What is Goldman Sachs's forecast of the exchange rate in 1 year?

Question

Rudy Petersen

Business

22 February, 06:38

4. The Mexican peso has weakened considerably relative to the dollar, and you are trying to decide whether this is a good time to invest in Mexico. Suppose the current exchange rate of the Mexican peso relative to the U. S. dollar is MXN 9.5/USD. Your investment advisor at Goldman Sachs argues that the peso will lose 15% of its value relative to the dollar over the next year. What is Goldman Sachs's forecast of the exchange rate in 1 year?

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Rey Robinson · Answer 1

The forecast exchange rate in one's year time according to Goldman Sachs is MXN 14.25/USD

Explanation:

The fact that the Mexican Peso will lose 15% of its value to the dollar means that a dollar will command 15% of the current Peso value in a year's time.

Mathematically, MXN 9.5*1.15 = MXN14.25 in a year's time.

It also implies that a Mexican with dollars wanting to convert into MXN in a year's time will receive more Peso compared to now.