Japan, the European Union, Canada, and Mexico have flexible exchange rates.

Suppose in a different part of the world, the real interest rate in Canada increases relative to that in Mexico.

1. Using a correctly labeled graph of the foreign exchange market for the Canadian dollar, show the effect of the change in real interest rate in Canada on the international value of the Canadian dollar (expressed as Mexican pesos per Canadian dollar).
2. How will the change in the international value of the Canadian dollar that you identified in part (b)(i) affect Canadian exports to Mexico? Explain.