* Direct quotes (number of U.S. dollars per unit of foreign currency). Other quotes are indirect (units...

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* Direct quotes (number of U.S. dollars per unit of foreign currency). Other quotes are indirect (units of foreign currency per U.S. dollar).

a. How many Brazilian reals do you get for your dollar?

b. If the 1-year forward rate on the real is BRL1.834 = USD1, is the real at a forward discount or premium?

c. If the 1-year interest rate on dollars is 1%, what do you think is the interest rate on the real?

d. According to the expectations theory, what is the expected spot rate for the real in 1 year's time?

e. According to purchasing power parity, what is the difference in the expected rate of price inflation in the United States and the rate in Brazil?

* Direct quotes (number of U.S. dollars per unit of


* Direct quotes (number of U.S. dollars per unit of


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Fundamentals of Corporate Finance

ISBN: 978-0078034640

7th edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus

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