A Mexican firm exchanges Pesos for U.S. dollars and then uses these dollars to purchase corn from the U.S. This transaction

Question

Quizplus · Accepted Answer

The Mexican firm exchanging pesos for U.S. dollars and purchasing corn from the U.S. is increasing U.S. net exports, as they are buying goods from the U.S. This transaction does not increase Mexican net capital outflow, as the firm is using dollars to purchase the corn instead of investing in U.S. assets. The exchange of currencies is a necessary step in the transaction, but it does not affect the capital outflow. Therefore, option C is the correct answer.

A Mexican Firm Exchanges Pesos for U