Question

Assume the U.S. dollar and the Mexican peso are traded in flexible currency markets. Which of the following would cause the U.S. dollar to depreciate relative to the Mexican peso?

1)Higher price level in Mexico relative to the United States.

2)Higher interest rates in the United States relative to Mexico.

3) Higher incomes in Mexico relative to the United States.

4)Increasing price level in the United States relative to Mexico.

5)Decreasing price level in the United States relative to Mexico.