Considering the Theory of Purchasing Power Parity, If Inflation in Mexico

Multiple Choice

Considering the theory of purchasing power parity, if inflation in Mexico is 5% while prices in the U.S. are stable; we should expect over the period of a year:

A) the dollar to appreciate 5% relative to the peso.
B) the peso to appreciate 5% relative to the dollar.
C) the nominal exchange rate to stay fixed.
D) the real exchange rate of U.S. goods / Mexican goods to appreciate 5%.