Exchange rate crisis

The following graph shows the market for euros in terms of the Mexican peso. The market is initially in equilibrium at $1$ peso per euro and $30$ billion

euros traded per day. Suppose the peso falls in value, causing investors to sell their peso$-$denominated assets and to sell pesos for euros in order to

buy euro$-$denominated assets. As a result, the demand for euros shifts to the right, from $D_0$ to $D_1.$

If Mexico wants to maintain a fixed exchange rate of $1$ peso per euro, it should

euros in the foreign exchange market. To be successful, this

policy would have to

$\_$ euros by

billion euros at any given exchange rate.

In this type of situation, a speculative attack may occur if investors believe which of the following statements?

Mexican assets are soon going to increase in value.

Mexico is running out of euro reserves.

The demand for Mexican goods is going to dramatically increase.

True or False: In the event of a successful speculative attack, Mexican businesses tend to suffer because their foreign debt will now cost more to