With floating exchange rates, the dollar will appreciate against the Mexican peso if the price level in the U.S. rises relative to the price level in Mexico.

Question

Quizplus · Accepted Answer

With floating exchange rates, if the price level in the U.S. rises relative to the price level in Mexico, the dollar is likely to depreciate against the Mexican peso because U.S. goods become relatively more expensive, reducing demand for dollars to buy those goods.

With Floating Exchange Rates, the Dollar Will Appreciate Against the Mexican