Question

The following is historical data on the U.S. dollar/Brazilian real exchange rate:                             

The following is historical data on the U.S. dollar/Brazilian real exchange rate:                                         

date

Brazilian reals / U.S. dollar

5/23/2018

3.63

9/13/2018

4.21

  1. Which currency has appreciated over this period?
  2. How will this change in the exchange rate alter:
    1. U.S. exports to Brazil
    2. Brazilian exports to the U.S.
    3. The U.S. trade balance
    4. The Brazilian trade balance.
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Homework Answers

Answer #1

a ) Ans: Brazilian reals has appreciated over this period.

Explanation:

On 5/23/2018 , 1 Brazilian reals = 3.63 U.S. dollar

On 9/13/2018 , 1 Brazilian reals = 4.21 U.S. dollar

It is cleared from the above information that the Brazilian reals has appreciated and U.S. dollar has depreciated over this period. This is because of change in the relative prices.

b ) 1. Ans: U.S. exports to Brazil will increase due to depreciation value of its currency.

2. Ans: Brazilian exports to the U.S. will decrease due to appreciation value of its currency.

3. Ans : The U.S. trade balance will improve due to increase in exports and decrease in imports.

4. Ans: The Brazilian trade balance will deteriorate due to increase in imports and decrease in exports.

Notes : Trade balance = Total value of Imports - Total value of Exports

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