Assume that, under a system of floating exchange rates, Mexicans decide to increase their investments in the United States. As a result,
A)the peso and the dollar will both depreciate.
B)the peso and the dollar will both appreciate.
C)the peso will depreciate and the dollar will appreciate.
D)the peso will appreciate and the dollar will depreciate.

Question

Quizplus · Accepted Answer

When Mexicans increase their investments in the United States, they need to convert their pesos into dollars to make these investments. This increases the demand for dollars and decreases the demand for pesos. As a result, the value of the peso will depreciate relative to the dollar, and the value of the dollar will appreciate relative to the peso.

Assume That, Under a System of Floating Exchange Rates, Mexicans