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,

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If Brazil experiences rapid inflation, its currency, the real, will depreciate because investors will be wary of holding onto a currency that is losing value quickly. On the other hand, if the price level remains stable in Mexico, there will be no pressure on the Mexican peso to change in value, so it will not depreciate. Gold bullion flowing into Brazil is not a likely outcome, as investors typically purchase gold as a hedge against inflation, which would not be a concern in Mexico in this scenario.

Assume That Brazil and Mexico Have ﬂOating Exchange Rates