📚 Learning Guide
Currency Exchange and Trade Balance
easy

If the Canadian dollar appreciates against the peso, what is the most likely effect on Mexico's trade balance with Canada?

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Learning Path
Learning Path

Question & Answer
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Choose the Best Answer

A

Mexico's exports to Canada will increase

B

Mexico's imports from Canada will become more expensive

C

The value of the peso will decrease

D

Canada will start demanding more pesos for their goods

Understanding the Answer

Let's break down why this is correct

Answer

When the Canadian dollar appreciates against the peso, it means that the Canadian dollar becomes stronger compared to the Mexican peso. This change makes Canadian goods more expensive for people in Mexico, which could lead to a decrease in Mexican imports from Canada. At the same time, Canadian consumers would find Mexican goods cheaper, possibly increasing their imports from Mexico. As a result, Mexico might export more to Canada while importing less, which could improve Mexico's trade balance with Canada. For example, if a Canadian car that used to cost 10,000 pesos now costs 12,000 pesos, many Mexicans might decide not to buy it, affecting trade negatively for Canada.

Detailed Explanation

When the Canadian dollar gets stronger, it means Canadians need more pesos to buy things from Mexico. Other options are incorrect because Some might think that if the Canadian dollar is stronger, Mexico will sell more to Canada; It's easy to think that if one currency gets stronger, the other must get weaker.

Key Concepts

Currency Appreciation
Trade Balance
Net Exports
Topic

Currency Exchange and Trade Balance

Difficulty

easy level question

Cognitive Level

understand

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