The Figure Given Below Depicts the Demand and Supply of Brazilian

question 71

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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