Question

Imagine that you carried out a transaction for Product A with your German credit card during...

Imagine that you carried out a transaction for Product A with your German credit card during your stay in Brazil. The currency of Brazil is the Real (BRL), while that of Germany, as you know, is the Euro (EUR).
a) Please include and interpret a graph that shows the evolution of the nominal exchange rate EUR/BRL in the last years (suggested platforms XE.com, or also on google directly). What is the nominal exchange rate on the day of the exam?
b) Let us assume that your credit card transaction for Product A amounts to 4500 BRL. Let us also assume that there are no acquiring and interchange fees, in order to simplify the problem. If the exchange rate that the bank charges is 10% higher than the nominal exchange rate, how much do you have to pay in euros to your German bank?
c) Imagine that the price of the same Product A is 900 EUR in Germany. Since you know how to calculate real exchange rates, you decide to find ??????/???, taking the nominal rate from a) into consideration.
d) If Product A is bought massively by German residents who visit Brazil, caeteris paribus (all other things remain equal), what could we observe on the balance of payments of Brazil and Germany? Explain using the components of the Balance of Payments.

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Answer #2

A. The following chart from xe.com shows the movement of BRL/EUR exchange rate over the last 10 years.

today is 3rd of July. Today the exhange rate is 6.02041

B. Since I am paying in EUR, let us see how many EUR I have to pay nominally.

4500/6.02041= 747.457399081

Now, onver it, I will have to pay 10% extra. So, I will pay

747.457399081*1.1= 822.203138989 EUR

C. Excluding exchange rate fee, I paid 747.457399081EUR for a product that was of 900EUR in Germany. So, real exchange rate

=900/747.457399081 = 1.204082

D. German tourists buying anything in Brazil is effectively an import for Germany and an export for Brazil. This will affect the current account of both countries. Brazil's current account surplus will increase while Germany's current account deficit will increase.

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