if investors can earn 10 percent interest in an account in mexico but just 3 percent in the united states…

if investors can earn 10 percent interest in an account in mexico but just 3 percent in the united states, those investors will most likely\n\ncontinue to invest in the united states and have no effect on the exchange rate.\nwant to invest in mexico and cause the exchange rate to rise.\ntry to do anything possible to keep the exchange rate from changing.\nwant to invest in mexico, which will cause the peso to appreciate.

if investors can earn 10 percent interest in an account in mexico but just 3 percent in the united states, those investors will most likely\n\ncontinue to invest in the united states and have no effect on the exchange rate.\nwant to invest in mexico and cause the exchange rate to rise.\ntry to do anything possible to keep the exchange rate from changing.\nwant to invest in mexico, which will cause the peso to appreciate.

Answer

Brief Explanations:

Investors seek higher - return opportunities. A higher interest rate in Mexico (10% vs 3% in the US) will attract investors to Mexico. When investors buy Mexican assets, they need to exchange their home - currency for pesos, increasing the demand for pesos. According to the law of supply and demand in the foreign - exchange market, an increase in the demand for pesos will cause the peso to appreciate.

Answer:

D. want to invest in Mexico, which will cause the peso to appreciate.