Exhibit 20-7 -Imagine There Are Only Two Countries in the World, Mexico

question 143

Multiple Choice

Exhibit 20-7
-Imagine there are only two countries in the world, Mexico and Canada, and two currencies, pesos and Canadian dollars. If Mexico's central bank wants to protect its currency from depreciating in response to the demand shift shown in Exhibit 20-7, which of the following is most likely to be the policy it will choose?

• A) increasing the supply of pesos
• B) decreasing the supply of Canadian dollars
• C) purchasing Canadian dollars with newly issued pesos
• D) purchasing pesos with reserves of Canadian dollars
• E) selling pesos to Canadians

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Definitions:

Bailment

describes a legal relationship in which one party temporarily relinquishes possession but not ownership of a piece of property to another party under agreement.

Carport

A covered structure used to provide limited protection to vehicles, primarily from rain and snow, which unlike a garage, is open on two or more sides.

Liable

Refers to being legally responsible for something, usually implying a duty to make restitution for harm or damage caused.

Salvage

A reward given to persons who voluntarily assist a sinking ship to recover its cargo from peril or loss.