When Steve went to Mexico, he found that he could go to his bank and trade his 100 Canadian dollars for 750 Mexican pesos (the nation's currency). This is an example of 7.5 Mexican pesos representing which of the following?
A) the foreign trade rate
B) the balance of payments
C) the international trade rate
D) the exchange rate

Question

Quizplus · Accepted Answer

The exchange rate represents the value of one currency in terms of another currency. In this case, Steve exchanged Canadian dollars for Mexican pesos, and the exchange rate was 7.5 pesos for every 1 Canadian dollar. Therefore, the correct answer is D. Option A, foreign trade rate, refers to the rate at which one country's currency can be exchanged for another country's currency for the purpose of international trade. Option B, balance of payments, refers to the difference between a country's exports and imports in terms of goods, services and investments. Option C, international trade rate, is not a commonly used term in economics. Therefore, A, B, and C are not the correct choices.

When Steve Went to Mexico, He Found That He Could