Suppose that Mexico has external debt,and the value of the country's currency,the peso,falls.Which of the following is true?

Question

Quizplus · Accepted Answer

If the value of the peso falls, the cost of debt service will increase as it will be more expensive for Mexico to pay off its external debt. This is because the debt service payments are denominated in foreign currency, so the cost will increase as the peso value falls. Option B is incorrect as it is the opposite of what would happen if the value of the peso fell. Option A is incorrect as the peso value of loans will remain the same as they are denominated in foreign currency. Option C is an extreme option and not necessarily true in this scenario.

Suppose That Mexico Has External Debt,and the Value of the Country's