Asked by Sagar Rajput on Jul 29, 2024
Verified
Assume that Brazil and Mexico have floating exchange rates. Other things unchanged, if the price level is stable in Mexico, but Brazil experiences rapid inflation,
A) gold bullion will flow into Brazil.
B) the Brazilian real will depreciate.
C) the Mexican peso will depreciate.
D) the Brazilian real will appreciate.
Floating Exchange Rates
A currency valuation system in which exchange rates are determined by the free market forces of supply and demand without direct intervention by national governments.
Price Level
The average of current prices across the entire spectrum of goods and services produced in the economy.
Brazilian Real
The official currency of Brazil, symbolized as R$ and denoted by the ISO code BRL.
- Recognize the influence of macroeconomic indicators, namely inflation and interest rates, on the movement of exchange rates in systems with floating currencies.
- Understand the principle of purchasing power parity and its influence on setting exchange rates.
Verified Answer
Learning Objectives
- Recognize the influence of macroeconomic indicators, namely inflation and interest rates, on the movement of exchange rates in systems with floating currencies.
- Understand the principle of purchasing power parity and its influence on setting exchange rates.
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