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 22.1
In the figure:
D 1 and D 2 : Demand for Brazilian reals
S 1 and S 2 : Supply of Brazilian reals

-Refer to Figure 22.1. The demand curves shown for Brazilian reals are based on:
A)the supply of Brazilian reals in the market.
B)the demand for Mexican pesos.
C)Brazilian demand for Brazilian products.
D)Brazilian demand for Mexican products.
E)Mexican demand for Brazilian products.

Question

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 22.1
In the figure:
D 1 and D 2 : Demand for Brazilian reals
S 1 and S 2 : Supply of Brazilian reals
 
-Refer to Figure 22.1. The demand curves shown for Brazilian reals are based on:
A)the supply of Brazilian reals in the market. 
B)the demand for Mexican pesos. 
C)Brazilian demand for Brazilian products. 
D)Brazilian demand for Mexican products. 
E)Mexican demand for Brazilian products.

Quizplus · Accepted Answer

The demand curves for Brazilian reals are based on the Mexican demand for Brazilian products. This is because when Mexicans want to buy Brazilian products, they need to exchange their pesos for reals, thereby increasing the demand for reals in the foreign exchange market.

The Figure Given Below Depicts the Demand and Supply of Brazilian