Suppose that Canada and Mexico allow their currencies to float. Other things equal, if the Canadian central bank raises Canadian interest rates relative to Mexican rates: Group of answer choices gold will flow into Canada. Mexico will be forced to sell official dollar reserves to maintain price stability. Mexico will be forced to accept policies leading to lower unemployment and higher prices. the Canadian dollar will appreciate relative to the Mexican peso.
Suppose that Canada and Mexico allow their currencies to float. Other things equal, if the Canadian central bank raises Canadian interest rates relative to Mexican rates: Group of answer choices
gold will flow into Canada.
Mexico will be forced to sell official dollar reserves to maintain price stability.
Mexico will be forced to accept policies leading to lower
the Canadian dollar will appreciate relative to the Mexican peso.
In the floating exchange rate (also known as flexible exchange rate) the country's currency will be set by the Forex market through demand and supply. The floating exchange rate generally fluctuates constantly as there will be regular fluctuations due to the response to foreign exchange market events. The speculation sets or supply and demand will determine the exchange rates (or conversion units)
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