Suppose Mexico had sizable capital inflows in 1996 (i.e., a little more than a year after its currency crisis in December 1994), and its currency fluctuated freely.
a. What effect should these flows have had on the three major accounts (i.e., CA, KA, and FA) of Mexico's balance of payments? Indicate the accounts that would change.
b. What effect should these flows have had on the international value of the Mexican peso?
c. What effect should these flows have had, if any, on Mexico's monetary base?