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Step One: Explain what is meant by a floating exchange rate and how the supply and demand for currency affect the exchange rate.
Step Two: Explain how each of the following factors will impact the value of the US Doller relative to Mexican Pesos. Specifically, will the value of the dollar appreciate or depreciate and why?
a. Inflation in the U.S. increases.
b. Interest rates in Mexico fall.
c. US companies increase investment in Mexico
d. Mexican Tourism to the US increases.
Step Three: Discuss both the benefits and disadvantages of weak currencies.
