Question

State whether each of the following events will shift the demand or supply of Argentine pesos, to the left or the right and whether, as a result, the peso will appreciate or depreciate.

•   Because Argentina has resolved its international debt problems, US and European investors begin buying Argentine stocks.
•   Rapid growth in Argentina causes Argentines to buy foreign-made automobiles.
•   Concerns about mad cow disease in Argentine cattle causes the country’s exports of beef to plummet.

Answer 1

1 - Increase in demand for Argentina stocks , will increase the demand for the Peso. The demand curve for Peso will shift right , the value will increase, the currency will appreciate.

2 - Due to lesser preference of goods of Argentina and greater preference for foreign goods , demand for Peso will fall. This will lead to leftward shift in demand for Peso. As a result the value of currency will fall and the currency will depreciate.

3 - As a result of the lesser exports , there will be lesser supply of the Peso in Argentinian economy. This will cause the leftward shift in the supply curve of Peso. This will increase the value of peso and the currency will appreciate.