Question

If Mexicans go on a spending spree and buy twice as much French perfume and twice as many Japanese TVs, English sweaters, Swiss watches, and bottles of Italian wine, what will happen to the value of the Mexican peso?

Short answer

The value of the Mexican peso will fall i.e. it will depreciate.

Step-by-step solution

Concept Introduction

Currency depreciation refers to a decrease in the value of money in terms of its exchange rate with other currencies.

Explanation

Money depreciation can be caused by a variety of factors, including monetary necessities, financing cost differentials, political uncertainty, and risk avoidance among financial backers.

Take Mexico as an example of a domestic country. Increased demand for imports would lower the normal future exchange rate, resulting in less expected enthusiasm for the peso. The lower projected return on peso resources at some random exchange rate would shift the interest curve to one side, causing the peso conversion standard to decline.

Final Answer 

The value of the Mexican peso will fall i.e. it will depreciate.