8. A. What do you understand by real exchange rate? Assume the price of a hotel room in

Mexico is 100 pesos and the price of the same hotel room in America is 20 USD. Also,

assume that 1 USD = 5 pesos. Given the information which hotel room will be cheaper

for you? (assume all other costs are non-existent).

B. If the Mexican peso depreciates to 1 USD = 7 Pesos and the price of the hotel room

remains the same as part A, how do you think your preference will change?

C. How will this depreciation affect the export-imports in the USA?