When the foreign exchange value of the Mexican peso is above its equilibrium rate, the peso will:
A)tend to be revalued.
B)tend to increase in value over other currencies.
C)be high demand in the foreign exchange market.
D)tend to depreciate.
E)tend to appreciate.

Question

Quizplus · Accepted Answer

When the foreign exchange value of a currency is above its equilibrium rate, it means that the currency is overvalued and its demand in the foreign exchange market is likely to decrease. This will lead to a decrease in the price of the currency, causing it to depreciate. Therefore, the correct answer is D – the peso will tend to depreciate.

When the Foreign Exchange Value of the Mexican Peso Is