The Figure Given Below Depicts the Demand and Supply of Brazilian

question 84

Multiple Choice

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 21.1

In the figure:
D₁ and D₂: Demand for Brazilian reals
S₁ and S₂: Supply of Brazilian reals

-Refer to Figure 21.1. If the initial equilibrium exchange rate is 6 pesos per real, then other things equal, a decrease in the number of Brazilian tourists to Mexico would:

• A) increase the demand for Brazilian reals from D2 to D1 and increase the exchange rate to 8 pesos per real.
• B) decrease the supply of Brazilian reals from S1 to S2 and increase the exchange rate to 8 pesos per real.
• C) decrease the supply of Brazilian reals from S1 to S2 and increase the exchange rate to 10 pesos per real.
• D) decrease the demand for Brazilian reals from D1 to D2 and increase the exchange rate to 8 pesos per real.
• E) decrease the supply of Brazilian reals from S1 to S2 and increase the demand for Brazilian reals from D2 to D1, thereby changing the exchanging rate to 10 pesos per real.

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Definitions:

Contribution Margin

The amount of revenue from sales that exceeds variable costs, indicating how much contributes to covering fixed costs and generating profits.

Unit Selling Price

Unit Selling Price is the price at which a single unit of a product or service is sold, not accounting for any discounts or promotions.

Unit Variable Costs

Unit Variable Costs refer to the expenses that vary directly with the production volume, including materials and labor directly involved in manufacturing.

Variable Cost

Expenses that fluctuate in direct correlation with the volume of production or business operations.