A Canadian company wants to purchase goods from Mexico. If the value of the Canadian dollar appreciates against the peso, how would this affect the trade balance for Canada? Classify the impact into one of the following categories.

When the Canadian dollar appreciates against the Mexican peso, it means that one Canadian dollar can buy more pesos than before. This makes goods from Mexico more expensive for Canadian buyers because they now need to spend more Canadian dollars to purchase the same amount of Mexican goods. As a result, Canadians may buy fewer products from Mexico, which can lead to a decrease in imports from that country. This situation can improve Canada's trade balance because a lower amount of imports means that Canada is spending less money on foreign goods. For example, if a shirt costs 200 pesos, and the exchange rate changes so that it now costs 10 Canadian dollars instead of 8, Canadians may decide not to buy that shirt, thus reducing imports.