If the current exchange rate of the Mexican peso and the Brazilian real is 0.20 real per peso, and the equilibrium exchange rate is 0.18 real per peso, which of the following describes the foreign exchange market for the Mexican peso?
a) There is a shortage of pesos and the peso will appreciate.
b) There is a shortage of pesos and the peso will depreciate.
c) There is a surplus of pesos and the peso will appreciate.
d) There is a surplus of pesos and the peso will depreciate.
e) There is a surplus of pesos and the real will depreciate.

the equilibrium exchange rate is 0.18 real per peso. Thus the current exchange rate is selling at a higher rate than what is indicated by the equilibrium exchange rate .

This means that the peso (base currency) is buying more unit of the real (foreign currency) at the current exchange rate.

This means there is a shortage of the Pesos. The demand for Pesos exceeds it supply, thus exchange rate would rise. When there is a shortage, value of the currency rises

sohail09753 sohail09753 · Answer 2 · 2021-12-13T10:22:35+01:00

The exchange rate is the rate is currencies for a single unit in the context of its value when exchanged against the foreign currency. It is used to convert domestic currency into foreign currency.

The statement describing the foreign exchange market for the Mexican peso is correct in option A) There is a shortage of pesos and the peso will appreciate.

In the given case the exchange rate is 0.18 real per peso this shows that the present or the current exchange rate is selling at a higher rate as compared to the indicated equilibrium exchange rate.

It can be concluded that the peso which is the base currency is buying more units at the current exchange rate of foreign currency. This shows the shortage of Pesos.

The shortage occurred due to excess demand over the supply of Pesos that will raise the exchange rate.

To know more about the exchange rate, refer to the link:

https://brainly.com/question/16923712