There Is a Flexible Exchange Rate System and Only Two

question 42

Multiple Choice

There is a flexible exchange rate system and only two countries in the world,the United States and Mexico.The real interest rate in the United States rises relative to the real interest rate in Mexico.It follows that

• A) the dollar will depreciate and the peso will appreciate.
• B) the peso will depreciate and the dollar will appreciate.
• C) both the peso and the dollar are likely to appreciate.
• D) both the peso and the dollar are likely to depreciate.

---

Definitions:

Investing

Dispensing money with the anticipation of making an income or profit.

Interest Rate

The percentage charged on borrowed money or paid on invested capital, reflecting the cost of borrowing or the reward for investing.

Investing

The act of allocating resources, typically money, with the expectation of generating an income or profit.

Interest Rate

The amount charged by lenders to borrowers for the use of assets, expressed as a percentage of the principal, the rate can influence inflation and economic activity.