Question

If investors can earn 10 percent interest in an account in Mexico but just 3 percent in the United States, those investors will most likely


continue to invest in the United States and have no effect on the exchange rate.

want to invest in Mexico and cause the exchange rate to rise.

try to do anything possible to keep the exchange rate from changing.

want to invest in Mexico, which will cause the peso to appreciate.

Answer 1

The answer is the last option D which states that those investors will most likely want to invest in Mexico, which will cause the peso (Mexico's currency) to appreciate.

These are some of the reasons why the value of a currency appreciates:

• If the demand of a currency goes up: This reason might be an explanation of the answer because if the USA invest in Mexico, it would make Mexico's currency to be demanded and in that sense, the currency will appreciate.
• Inflation rates: If the inflation of a country is low, it will appreciate the currency but if it is high it will depreciate.
• Government debt: If this is low it would make the country a place where investors want to invest and that would appreciate the currency.

Answer 2

Answer:

D is your answer

Explanation:

!