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Question: following an increase in mexican interest rates relative to us...

Question details

Following an increase in Mexican interest

rates relative to U.S. interest rates (which

causes Mexican investors to borrow abroad

to invest domestically), which of the following

is expected to occur?

a. The dollar would appreciate relative to the peso, and Mexican prices would increase.

b. The dollar would appreciate relative to the peso, and Mexican prices would decrease.

c. The dollar would depreciate relative to the peso, and Mexican prices would increase.

d. The dollar would depreciate relative to the peso, and Mexican prices would decrease.

Please answer and explain.

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