The diagram shows the exchange rate for the Brazilian real measured in US dollars. The rate falls from R1 to R2 after investors sell reais. R1R2US$ per real...

Assessment: Economics 9214 | Paper 1 Mock 01 | Written Paper 1 Subject: Economics - 9214

Question 1 Report

The diagram shows the exchange rate for the Brazilian real measured in US dollars. The rate falls from R1 to R2 after investors sell reais.

R1R2US$ per realquantity of reais© EAGLE BEACON GLOBAL

(a) State whether the real has appreciated or depreciated. [1]
(b) Explain one effect of this change on the price of Brazilian exports in the US market. [2]
(c) Calculate the percentage fall in the exchange rate if R1 was $0.25 and R2 was $0.20. [3]

Answer Details

(a) The Brazilian real has depreciated. Its exchange rate has fallen from \(R1\) to \(R2\), so each real is worth fewer US dollars. [1]

(b) Each real now buys fewer US dollars. [1] Prices set in reais convert into lower dollar prices, so Brazilian exports become cheaper for US consumers. [1]

(c) First calculate the fall:

\[\$0.25-\$0.20=\$0.05\]

Then divide by the original exchange rate:

\[\frac{\$0.05}{\$0.25}=0.20\]

\[0.20\times100=20\%\]

The exchange rate fell by 20%. [3]

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