The current exchange rate between Argentina and Brazil is 06

The current exchange rate between Argentina and Brazil is 0.65 Brazilian Real/Argentinean Peso. 1.2. If Argentina succeeds in reducing the nominal exchange rate to 0.5 Real/Peso, what will be the long run effect on the price competitiveness of Argentinean goods relative to Brazilian goods? (Required-3 points possible.) 8000 characters remaining) Submit Answer Continue without saving

Solution

For the reduced nominal exchange rate of Brazil to Argentina, the long run effects would be:

1. The imports become costlier for Argentina as it would get lesser goods for the reduced Brazilian real from 0.65 to 0,5 peso for one Argentina peso.

2. The exports of Argentina increases which would earn foreign exchange for the appreciated value

3. The investments would flow for the appreciated currency which would improve the economy of the Argentina