6. Changes in the foreign-exchange market The following questions focus on the exchange rate between the Russian ruble and the Mexican peso. Assume the exchange rate is exible. The exchange rate is defined as the number of rubles you must pay for one peso. Suppose an economic downturn in Mexico causes Mexican incomes to decrease, while Russian incomes remain unchanged. Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for Mexican pesos if all other things remain equal. Note: Select and drag one or both of the curves to the desired Position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther: _0_ S | of P upp y 9503 Demand for Pesos A D O 8 g Supply of Pesos n. w 2 '3 g Lu 9 D: in. Demand for Pesos -----+ QUANTITY OF PESOS Russia. Drag the appropriate curve or curves on the following graph to illustrate how this affects the market for Mexican pesos. * Supply 0f Pesos Demand for Pesos ... _D_ O m 0 3 Supply of Pesos a In -+ 9?. Lu 9 o: n. Demand for Pesos QUANTITY OF PESOS Suppose the real interest rates in Russia and Mexico are initially the same. Then the real interest rate in Russia falls, while the real interest rate in Mexico remains the same. This will cause the supply of pesos to V and the demand for pesos to V , which causes the Cominue without saving Russian ruble to V relative to the Mexican peso