Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso depreciates drastically against the U.S.dollar,as it did in December 1994.This means
A)your company's products can be priced out of the Mexican market, as the peso price of American imports will rise following the peso's fall.
B)your firm will be able to charge more in dollar terms while keeping peso prices stable.
C)your domestic competitors will enjoy a period of facing little price competition from Mexican imports.
D)both b) and c) are correct

Question

Quizplus · Accepted Answer

A depreciating Mexican peso means that the value of the peso relative to the dollar has decreased. This means that American imports will become more expensive for Mexican consumers since they use pesos. Thus, the products of the U.S. based company may become more expensive in terms of pesos, making them less attractive or affordable to Mexican consumers. Therefore, Option A is correct. Option B is incorrect because if the peso value is depreciating, it would not be logical to keep peso prices stable as this would be the same as increasing dollar prices. Option C is also incorrect as the competitors would face little price competition from Mexican imports only if the company maintains its current pricing strategy, which is not probable, given that a currency depreciation may prompt price changes.

Suppose Mexico Is a Major Export Market for Your U