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How would an increase in the value of the dollar relative to the Mexican peso affect the export of US automobiles to Mexico?
Wiki User
∙ 14y ago
Let's assume the currency exchange of the US dollar to Mexican pesos is valued at 1 dollar = 5 pesos. Then, let's say an American car costs 100 dollars.
Now, Mexican buyers will purchase such car in Mexican pesos. So, the cost of the car must be converted to pesos, which according to the currency exchange equals 100 x 5 = 500 Mexican pesos.
Now, what happens if the value of the dollar increases to... 1 dollar = 10 pesos? As the car made in the US is still valued in dollars, it will now cost 100 x 10 = 1,000 Mexican pesos. The car almost doubled its price! If you are Mexican, you would have a hard time trying to pay for the same car with such an increase in cost.
Therefore, when the dollar value increases relative to the peso, American exports suffer as fewer Mexican people and companies are able to purchase products and services with the increases in cost.
Wiki User
∙ 14y ago
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