The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market. Assume that the market operates under a flexible exchange rate regime.Figure 22.1
In the figure:
D 1 and D 2 : Demand for Brazilian reals
S 1 and S 2 : Supply of Brazilian reals

-Refer to Figure 22.1. Assume that the initial equilibrium exchange rate is 6 pesos per real. Other things remaining equal, an increase in the number of Brazilian tourists to Mexico is most likely to:
A)keep the equilibrium exchange rate constant.
B)shift the demand curve for pesos to the right.
C)shift the supply curve of pesos to the left.
D)shift the demand curve for pesos to the left.
E)lower the equilibrium exchange rate.

Question

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market. Assume that the market operates under a flexible exchange rate regime.Figure 22.1
In the figure:
D 1 and D 2 : Demand for Brazilian reals
S 1 and S 2 : Supply of Brazilian reals
 
-Refer to Figure 22.1. Assume that the initial equilibrium exchange rate is 6 pesos per real. Other things remaining equal, an increase in the number of Brazilian tourists to Mexico is most likely to:
A)keep the equilibrium exchange rate constant. 
B)shift the demand curve for pesos to the right. 
C)shift the supply curve of pesos to the left. 
D)shift the demand curve for pesos to the left. 
E)lower the equilibrium exchange rate.

Quizplus · Accepted Answer

An increase in the number of Brazilian tourists to Mexico would increase the demand for pesos, as tourists exchange reals for pesos to spend in Mexico. This would shift the demand curve for pesos to the right, leading to a higher equilibrium exchange rate.

The Figure Given Below Depicts the Demand and Supply of Brazilian