Suppose Mexico Is a Major Export Market for Your U

question 67

Multiple Choice

Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso depreciates drastically against the U.S. dollar, as it did in December 1994. This means that

• A)your company's products can be priced out of the Mexican market, as the peso price of American imports will rise following the peso's fall.
• B)your firm will be able to charge more in dollar terms while keeping peso prices stable.
• C)your domestic competitors will enjoy a period of facing little price competition from Mexican imports.
• D)both b and c are correct

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Definitions:

Fractional Reserves

A banking system in which banks hold a fraction of their depositors' funds in reserve, lending out the remainder to earn interest.

Opportunity Cost

The loss of potential gain from other alternatives when one alternative is chosen, representing the benefits an individual, investor, or business misses out on when choosing one option over another.

Fiat Money

Currency that a government has declared to be legal tender, despite it lacking intrinsic value and not being backed by physical commodities.

Legal Tender

Government-issued currency that, by law, must be accepted as a form of payment within the country.