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

Question

Quizplus · Accepted Answer

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).

Suppose That the Mexican Government Decides to Fix or Peg