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)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Please help me with this question! 6

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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