Question

Suppose inflation in the US is projected to be 2% in the coming year. The current...

Suppose inflation in the US is projected to be 2% in the coming year. The current spot rate is USDBRL 3.1139 and you think the spot rate in 1 year will be USDBRL 3.38877. What is your forecast for inflation in Brazil in the coming year?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Consider the formula

S1 / S0 = (1 + Iy) ÷ (1 + Ix)

Where,
S0 is the spot exchange rate at the beginning of the time period (measured as the "y" country price of one unit of currency x)
S1 is the spot exchange rate at the end of the time period.
Iy is the expected annualized inflation rate for country y, which is considered to be the foreign country.
Ix is the expected annualized inflation rate for country x, which is considered to be the domestic country.


3.38877/3.1139 =(1+Iy)/ (1+2)

1+Iy = 3.2648

inflation forecast in brazil in the coming year is 2.2648

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. Suppose the expected annual rate of inflation for the coming year is 8% for the...
1. Suppose the expected annual rate of inflation for the coming year is 8% for the US and 4% for Switzerland. The current spot exchange rate is $:SFr=2. The one-year interest rate is 10% in the US. Using the precise form of the international parity relations, compute the one-year interest rate in Switzerland, the expected Swiss franc to pound exchange rate in one year, and the one-year forward exchange rate. 2. A US investor likes to invest in the foreign...
Japan is expected to have inflation of 2% for the coming year, while the Us is...
Japan is expected to have inflation of 2% for the coming year, while the Us is expected to have inflation of 3%. The spot exchange rate is 125yen/$. A Toyota made in Japan costs 4.75 million yen today. Purchasing Power Parity holds. Which of the following is true? a. A car made in the US will cost $38,760 one year from today b. If the exchange rate is 125yen/$ one year from today, Japanese cars will have lost competitiveness c....
Suppose that the current yield of 110 year maturity Treasury note is 2% and the current...
Suppose that the current yield of 110 year maturity Treasury note is 2% and the current yield on 10 year maturity TIP S is 1% if the expected us inflation rate of next year is 2% which security do you want to buy between tips and the Treasury note
The table below shows the information for exchange rates, interest rates and inflation rates in the...
The table below shows the information for exchange rates, interest rates and inflation rates in the US and Germany. Answer the following questions Current spot rate: $1.60/€ One-year forward rate: $1.58/€ Interest rate in the US: 2% Interest rate in Germany: 4% Inflation rate in the US: 2% Inflation rate in Germany: 3% (a) If you borrowed $1,000 for 1 year, how much money would you owe at maturity? (b) Find the 1-year forward exchange rate in $ per €...
The interest rate on South Korean government securities with one-year maturity is 4% and the expected...
The interest rate on South Korean government securities with one-year maturity is 4% and the expected inflation rate for the coming year is 2%. The U.S. interest rate on government securities with one-year maturity is 7% and the expected rate of inflation is 5%. The current spot exchange rate for Korea Won is $1 = W1,200. Forecast the spot exchange rate one year from today. Explain the logic of your answer.
Because of recession, the inflation rate expected for the coming year is only 2%. However, the...
Because of recession, the inflation rate expected for the coming year is only 2%. However, the inflation rate in year 2 and thereafter is expected to be constant at some level above 2%. Assume that the real risk-free rate is r*=3% for all maturities and that there are no maturity premiums. If 3-year Treasury Notes yield 2 percentage points more than 1-year notes, what inflation is expected after year 1?
Ghana’s inflation is forecasted to be 10.2% over the coming year whilst that of South Africa...
Ghana’s inflation is forecasted to be 10.2% over the coming year whilst that of South Africa is forecasted to be 6.5%. The current exchange rate between Ghana Cedi and the South African Rand is 0.32 ZAR per 1 GHS. i) How should we quote the exchange rate between Ghana Cedi and the South African Rand (ZAR) in a year’s time to avoid arbitrage? ii) A Ghanaian company is importing goods worth ZAR 20m in a year’s time, how much GHS...
11. Canada’s inflation rate is 2% over one year but the inflation rate in the US...
11. Canada’s inflation rate is 2% over one year but the inflation rate in the US is only 1%. According to PPP what should happen to the US dollar / Canadian dollar exchange rate? A) The US dollar depreciates in the long run B) The Canadian dollar depreciates in the long run C) Inflation has no effect on the exchange rate in the long run D) We cannot tell the effect of exchange rate in the long run without information...
1. Suppose the yields on government bonds are as follows: 1-year = .01; 2-year = .02;...
1. Suppose the yields on government bonds are as follows: 1-year = .01; 2-year = .02; 3-year = .05. According to the expectations theory, what is the implied 1-year forward yield on a 1-year government bond? 2. Suppose we have a zero coupon bond with a yield of 6% and 5 years to maturity, use duration to estimate its price if interest rates fall by 1%. 3. If the 5-year treasury rate was 2.5% and the 5-year TIPS yield was...
2. Suppose that you are told that the interest rate on a US government bond is...
2. Suppose that you are told that the interest rate on a US government bond is 3 percent compared to a 2 percent interest rate on a comparable German bond (i.e. equal risk and maturity). a) Assuming that uncovered interest parity holds (so that investors are currently indifferent between the two assets), what would this imply about the market's expectation of the future value of the dollar in the exchange market? Explain. (10 points) b) Suppose that the current spot...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT