CHAPTER 10 QUIZ 29

CHAPTER 10  QUIZ  29
Exposure to Pegged Currency System. Assume that the Mexican peso and the Brazilian currency
(called the “real”) have depreciated against the dollar recently, due to the high inflation rates in
those countries. Assume that inflation in these two countries is expected to continue and that it
will have a major effect on these currencies if they are still allowed to float. Assume that the
government of Brazil decides to peg its currency to the dollar and will definitely maintain the peg
for the next year. Milez Co. is based in Mexico. Its main business is to export supplies from
Mexico to Brazil. It invoices its supplies in Mexican pesos. Its main competition is from firms in
Brazil that produce similar supplies and sell them locally. How will the sales volume of Milez
Co.be affected (if at all) by the Brazilian government- actions? Explain.

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