Asked by gagan singh on Jul 30, 2024
Verified
Suppose that the Mexican government decides to fix or peg the dollar-peso exchange rate at P20 = $1. If foreign-exchange traders on one day want to exchange P40 million for dollars, to enforce the peg the Mexican government will need to come up with
A) $40 million.
B) $800 million.
C) $2 million.
D) $0.5 million.
Dollar-Peso Exchange Rate
The rate at which the currency of one country (USD) can be exchanged for the currency of another country (peso).
Foreign-exchange Traders
Individuals or entities that buy and sell currencies, aiming to profit from changes in exchange rates.
Mexican Government
The federal republic governing structure of Mexico, comprised of executive, legislative, and judicial branches.
- Scrutinize the ramifications of trade deficits and the approaches utilized for their financing.
Verified Answer
JG
Jackie GibbsAug 06, 2024
Final Answer :
C
Explanation :
To enforce the peg of P20 = $1, the Mexican government will need to provide $2 million in exchange for P40 million (40 million pesos / 20 pesos per dollar = 2 million dollars).
Learning Objectives
- Scrutinize the ramifications of trade deficits and the approaches utilized for their financing.