ECONOMICS
TRADE EXCHANGE AND INTERDEPENDENCE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Buy and hold dollars
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Exchange their dollars and buy stuff in pesos
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Save their pesos
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None of the above
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Detailed explanation-1: -If the exchange rate for the Mexican peso changes from 9 Pesos to the U.S. dollar to 10 pesos to the U.S. dollar, we can infer that the Mexica peso has depreciated as one will have to shell out more Mexican pesos for the same U.S. dollars.
Detailed explanation-2: -What will happen to the international value of the Mexican Peso if the interest rate in Mexico falls?-The demand for pesos will decrease since people in other countries will buy fewer Mexican financial assets.
Detailed explanation-3: -The basic-heading PPP for each pair of economies can be computed directly by taking the geometric mean of the price relatives between them for the two kinds of rice. This is a bilateral comparison. The PPP between economies B and A can be computed indirectly: PPP C/A × PPP B/C = PPP B/A.
Detailed explanation-4: -The implied PPP rate of exchange of Mexican Pesos per U.S. dollar is 8.50 according to the Big Mac Index.