Assume that Brazil and Mexico have floating exchange rates. Other things unchanged, if the price level is stable in Mexico but Brazil experiences rapid inflation:

A) gold bullion will flow into Brazil.

B) the Mexican peso will depreciate.

C) the Brazilian real will depreciate.

D) the Brazilian real will appreciate.

Question

Donovan Fernandez

Business

7 January, 03:09

Assume that Brazil and Mexico have floating exchange rates. Other things unchanged, if the price level is stable in Mexico but Brazil experiences rapid inflation:

A) gold bullion will flow into Brazil.

B) the Mexican peso will depreciate.

C) the Brazilian real will depreciate.

D) the Brazilian real will appreciate.

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Answers (1)

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Hoffman · Answer 1

Brazil and Mexico have floating exchange rates. Other things unchanged, if the price level is stable in Mexico but Brazil experiences rapid inflation the Brazilian real will depreciate.

Explanation:

A floating exchange rate is a concept in which a country's currency price is dependent on supply and demand in the foreign exchange market in contrast to other currencies. It compares with a fixed exchange rate in which the government determines the rate fully or mainly.

Maybe the most well-known example, but not the worst case, of hyperinflation is East Germany. Germany was subject to extreme economic and political changes in the time following World War I. Much of this stemmed from the provisions of the end of the war Treaty of Versailles.