Suppose that,under a system of flexible exchange rates,Mexicans decide to increase their investments in Canada.What will result?

Question

Quizplus · Accepted Answer

When Mexicans increase their investments in Canada, they will need to exchange pesos for Canadian dollars to make those investments. This increased demand for Canadian dollars will cause the value of the Canadian dollar to appreciate. At the same time, there will be a decrease in demand for pesos, which will cause the value of the peso to depreciate. This is because there will be a surplus of pesos in the market, making them less valuable. Therefore, the peso will depreciate and the Canadian dollar will appreciate in value.

Suppose That,under a System of Flexible Exchange Rates,Mexicans Decide to Increase