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6. Mexico and Canada have flexible exchange rates. Suppose the real interest rate in Canada increases relative to that in Mexico. a. Using a correctly labeled graph of the foreign exchange market for the Canadian dollar, show the effect of the change in real interest rate in Canada on the international value of the Canadian dollar (expressed as Mexican pesos per Canadian dollar). 13) b. How will the change in the international value of the Canadian dollar that you identified in part "a." affect Canadian exports to Mexico? Explain. 12)

6. Mexico and Canada have flexible exchange rates. Suppose the real interest rate in Canada increases relative to that in Mexico. a. Using a correctly labeled graph of the foreign exchange market for the Canadian dollar, show the effect of the change in real interest rate in Canada on the international value of the Canadian dollar (expressed as Mexican pesos per Canadian dollar). 13) b. How will the change in the international value of the Canadian dollar that you identified in part "a." affect Canadian exports to Mexico? Explain. 12)

Exploring Economics
Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter29: International Finance
Section: Chapter Questions
Problem 8P
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6. Mexico and Canada have flexible exchange rates. Suppose the real interest rate in Canada increases relative to that in Mexico. a. Using a correctly labeled graph of the foreign exchange market for the Canadian dollar, show the effect of the change in real interest rate in Canada on the international value of the Canadian dollar (expressed as Mexican pesos per Canadian dollar). ( 13) b. How will the change in the international value of the Canadian dollar that you identified in part "a. affect Canadian exports to Mexico? Explain. (C 12)
Transcribed Image Text:6. Mexico and Canada have flexible exchange rates. Suppose the real interest rate in Canada increases relative to that in Mexico. a. Using a correctly labeled graph of the foreign exchange market for the Canadian dollar, show the effect of the change in real interest rate in Canada on the international value of the Canadian dollar (expressed as Mexican pesos per Canadian dollar). ( 13) b. How will the change in the international value of the Canadian dollar that you identified in part "a. affect Canadian exports to Mexico? Explain. (C 12)
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