Determining the brl-usd exchange rate

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1. Assume that real interest rates around the world are 2% and that PPP and the Fisher effect both hold. Inflation in Brazil is 5% and in the US it is 2%. GDP growth is rates are 2% in both countries. The exchange rate is 7 Brazilian real (BRL) per USD. Use Brazil as the domestic country.

a. What will the BRL/USD exchange rate be next year?

b. What does the Fisher effect predict for the 2 nominal interest rates?

If the quantity theory of money is correct, how fast is the money supply growing in Brazil and the US?

Reference no: EM132642752

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