If Mexico experienced a period of rapid inflation, causing Mexicans to lose confidence in the peso as a store of value, which of the following would be most likely to occur?

Question

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When a country experiences rapid inflation, domestic currency loses value, leading to a decrease in confidence in the currency as a store of value. This forces people to look for substitutes, usually in the form of foreign currency. Therefore, it is most likely that foreign currency will be used as a substitute for the peso in this scenario. Option A is incorrect because when the value of a currency decreases, it tends to depreciate on the foreign exchange market. Option C is incorrect because other countries are unlikely to accept a currency that is losing value rapidly as a store of value. Option D is not necessarily true because it depends on individual circumstances, and people may choose to invest in other assets rather than save in a currency losing value. Finally, option E is incorrect because rapid inflation causes a decrease in the purchasing power of the currency.

If Mexico Experienced a Period of Rapid Inflation, Causing Mexicans