Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It makes Mexican exports cheaper for Canadians, increasing trade balance.
B
It makes Canadian imports more expensive for Mexico, potentially worsening trade balance.
C
It has no effect on trade balance as currency fluctuations do not influence trade.
D
It encourages Mexicans to export more goods due to higher demand for pesos.
Understanding the Answer
Let's break down why this is correct
Answer
When the peso appreciates against the Canadian dollar, it means that the peso becomes stronger, making Mexican goods more expensive for Canadians to buy. This can lead to a decrease in exports from Mexico to Canada because Canadian consumers may choose to buy cheaper products from other countries instead. On the other hand, it also makes Canadian goods cheaper for Mexicans, which can increase imports from Canada. For example, if a Canadian product costs 100 Canadian dollars and the exchange rate changes so that it is now only 80 pesos instead of 100 pesos, more Mexicans might buy it. Overall, if Mexico exports less and imports more, its trade balance could worsen.
Detailed Explanation
When the peso gets stronger, Canadian goods cost more for Mexico. Other options are incorrect because This answer suggests that cheaper exports help trade balance; This answer thinks currency changes don't matter.
Key Concepts
Currency appreciation and depreciation
Trade balance effects
Net exports
Topic
Currency Exchange and Trade Balance
Difficulty
medium level question
Cognitive Level
understand
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