Under a system of freely flexible (floating) exchange rates, a U.S. trade deficit with Mexico will tend to cause

A) the U.S. government to ration pesos to U.S. importers.
B) a flow of gold from the United States to Mexico.
C) an increase in the peso price of dollars.
D) an increase in the dollar price of pesos.

Freely Flexible Exchange Rates

A currency system where the value of a currency is allowed to fluctuate according to the foreign exchange market without direct government intervention.

Trade Deficit

A situation where a country's imports of goods and services exceed its exports of them.

Peso Price

The value of a good or service expressed in pesos, the currency of various Latin American countries.