The expected future spot exchange rate

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Reference no: EM131506547

Currently the real interest rate in both US and Brazil is 1%. According to the consensus incapital markets, the annual inflation rate for the next two years is likely tobe 3% in US and 10% in Brazil. The spot exchange rate is currently $0.60/REAL. Based on the above information, please make your predictions on foreignexchange rate in the next year based on the parity relationships.

Since the inflation rateof Brazil exceeds the inflation rate of US by 7%, money supply in Brazil will (increase/decrease) by %.

Purchase power of money in Brazil will (increase/decrease) by %.

Brazilian Real should (appreciate/depreciate) in value by % relative to $.

The one-year forward Brazil real should sell at a forward (premium/discount) of % relative to $.

The expected future spot exchange rate in one year is $/REAL(please leave 4 decimal points).

The forward exchange rate between US and Brazilian Real for one-year maturity is $/REAL (please leave 4 decimal points).

The expected future spot exchange in two years from now is $/REAL (please leave 4 decimal points).

Reference no: EM131506547

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