Exposure to Pegged Currency System Assume that the Mexican peso and the Brazilian currency (the real) have depreciated against the U.S. 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. Also 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., a Mexico-based MNC, exports 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 be affected (if at all) by the Brazilian government’s actions? Explain.
Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*
*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.