-Refer to the Above Diagram

question 62

Multiple Choice

-Refer to the above diagram.The initial demand for and supply of pesos are shown by D₁ and S₁.If the decline in Canadian imports from Mexico described in the previous question occurred under a system of flexible exchange rates:

• A) gold would flow from Mexico to Canada.
• B) the peso price of dollars would rise from 1/B pesos equals $1 to,1/A pesos equals $1.
• C) a problem of rationing a shortage of pesos would arise in Canada.
• D) the dollar price of pesos would increase to C dollars equals 1 peso.

---

Definitions:

Futures Position

A contractual obligation to buy or sell a particular commodity or financial instrument at a predetermined price at a specified time in the future.

Underlying Commodity

The basic physical asset upon which futures contracts and derivatives are based.

Maturity

The specified date on which the principal amount of a bond, loan, or other financial instrument is due to be repaid.

Preferred Dividends

Payments made to preferred stockholders before any dividends are distributed to common stockholders, typically fixed and paid at regular intervals.