A Canadian company wants to import goods from Mexico. As the Canadian dollar appreciates against the Mexican peso, how will this affect the company's import costs and the trade balance between Canada and Mexico?

When the Canadian dollar becomes stronger compared to the Mexican peso, it means that each Canadian dollar can buy more pesos. For the Canadian company importing goods from Mexico, this results in lower import costs because they need to spend fewer Canadian dollars to purchase the same amount of goods priced in pesos. For example, if a product costs 1,000 pesos and the exchange rate changes so that 1 Canadian dollar equals 20 pesos instead of 15, the company now only needs to spend 50 Canadian dollars instead of 67. As a result, this situation can lead to an increase in imports from Mexico because they are cheaper, which might negatively affect Canada’s trade balance by increasing the trade deficit if exports do not rise as much. Overall, a stronger Canadian dollar can encourage more imports and potentially shift the trade balance between the two countries.