Homework Answers
If Mexico experiences a reduction in interest rates in relation to U.S. interest rates and there is no change in the inflationary conditions, the mexican investors will increase their investment in U.S. securities and there will be a downward pressure on mexican pesos value.
So th answer is c) increase , downward
This is because investors will be atttacted to the country offering higher return on their investment so they will increase the investment in U.S. securities and when they will invest more they will pay in U.S. dollars. For buying dollars , they have to sell mexican pesos. Due to market forces of demand and supply. Mexican pesos will face a downward pressure.
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