ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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There is a shortage of pesos and the peso will appreciate.
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There is a shortage of pesos and the peso will depreciate.
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There is a surplus of pesos and the peso will appreciate.
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There is a surplus of pesos and the peso will depreciate.
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There is a surplus of pesos and the real will depreciate.
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Detailed explanation-1: -If the current exchange rate of the Mexican peso and the Brazilian real is 0.20 real per peso, and the equilibrium exchange rate is 0.18 real per peso, which of the following describes the foreign exchange market for the Mexican peso? There is a surplus of pesos and the peso will depreciate.
Detailed explanation-2: -Which of the following best explains the change in the international value of the peso caused by a shift of the demand curve from D0D0 to D1D1 in the dollar-peso foreign exchange market? The peso has depreciated because Americans’ demand for Mexican goods and services decreased.
Detailed explanation-3: -The current account represents a country’s imports and exports of goods and services, payments made to foreign investors, and transfers such as foreign aid.
Detailed explanation-4: -Which of the following is recorded in a country’s balance of payment accounts? Exports are recorded in the current account balance and increase a country’s current account balance because exports cause money to flow into the country and therefore they are a credit entry in its current account.
Detailed explanation-5: -Interest rates in the United States decrease. If interest rates decrease in the US, people would want to invest more in the EU. The supply of the dollar would increase as people would start exchanging more dollars to get euros to invest in the EU. The increased supply of the dollar would depreciate its value.