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 that
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)none of the options

Question

Quizplus · Accepted Answer

If the Mexican peso depreciates drastically against the U.S. dollar, it means that American imports will become more expensive in peso terms. This will lead to pricing your company's products out of the Mexican market as the peso price of American imports will rise following the peso's fall. Therefore, choice A is the correct answer. B is incorrect because the firm cannot keep peso prices stable. C is also incorrect because Mexican imports will become cheaper, and domestic competitors will face increased price competition from Mexican imports.

Suppose Mexico Is a Major Export Market for Your U