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

-Suppose you observe that with a given supply curve, the Peruvian demand for Argentinean pesos steadily decreases. This will most likely mean:
A)the supply of Peruvian nuevos soles has increased on the foreign exchange market.
B)the Argentinean peso will appreciate in value relative to the Peruvian nuevo sol.
C)the Argentinean peso will depreciate in value relative to the Peruvian nuevo sol.
D)the Peruvian demand for Argentinean goods has increased.
E)the supply of Argentinean pesos has increased on the foreign exchange market.

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
 
-Suppose you observe that with a given supply curve, the Peruvian demand for Argentinean pesos steadily decreases. This will most likely mean:
A)the supply of Peruvian nuevos soles has increased on the foreign exchange market. 
B)the Argentinean peso will appreciate in value relative to the Peruvian nuevo sol. 
C)the Argentinean peso will depreciate in value relative to the Peruvian nuevo sol. 
D)the Peruvian demand for Argentinean goods has increased. 
E)the supply of Argentinean pesos has increased on the foreign exchange market.

Quizplus · Accepted Answer

If the demand for Argentinean pesos from Peru decreases, then the supply of Peruvian nuevos soles on the foreign exchange market is not relevant. Instead, it means that there is less demand for Argentinean pesos, which will lead to a decrease in their value relative to the Peruvian nuevo sol. This is a depreciation of the Argentinean peso in relation to the Peruvian nuevo sol.

The Figure Given Below Depicts the Demand and Supply of Brazilian