If the US interest rate is 4% per year and the Mexico interest rate is 9% per year,which of the following is true:
A)The dollar will depreciate 5% in one year.
B)The peso will appreciate 9% in one year.
C)The peso will depreciate 5% in one year.
D)The dollar will appreciate 9% in one year.

Question

Quizplus · Accepted Answer

The higher interest rate in Mexico will attract more investors, causing an increase in demand for pesos, and thus the peso will appreciate relative to the dollar. Therefore, the correct option is (C), as the dollar will be worth less in pesos and will have depreciated by approximately 5%.

If the US Interest Rate Is 4% Per Year and the Mexico