Holding all else constant, an increase in the real interest rate on Mexican assets will the supply for dollars in the foreign exchange market and the equilibrium Mexican peso/U.S. dollar exchange rate.

A. decrease; decrease
B. decrease; increase
C. increase; increase
D. increase; decrease

Answer: D

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Holding all else constant, an increase in the real interest rate on Mexican assets will ________ the supply for dollars in the foreign exchange market and ________ the equilibrium Mexican peso/U.S. dollar exchange rate.