If Mexico applies tariffs to imports of manufactured goods, then Mexico's demand for foreign exchange will rise, and the peso will depreciate under a system of floating exchange rates.

Question

Quizplus · Accepted Answer

Tariffs on imports reduce the demand for foreign goods, thereby decreasing the demand for foreign currencies to pay for those imports. This could lead to an appreciation of the peso under a floating exchange rate system, not a depreciation.

If Mexico Applies Tariffs to Imports of Manufactured Goods, Then