Suppose that the Canadian dollar depreciates nominally against the Mexican peso by 5%.The price level in Canada increases by 7%,but Mexico's price level does not change.From this,we can conclude that:

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When the Canadian dollar depreciates nominally against the Mexican peso by 5%, it means that now it takes more Canadian dollars to buy the same amount of Mexican pesos. As a result, Canadian goods become more expensive relative to Mexican goods. This is confirmed by the fact that the price level in Canada increases by 7%, which means that Canadian goods are now more expensive in general. Since Mexico's price level does not change, the real exchange rate for Canada depreciates (i.e., the relative price of Canadian goods has increased).

Suppose That the Canadian Dollar Depreciates Nominally Against the Mexican