Does purchasing power parity hold? If not, does PPP predict that the Brazilian real will appreciate or depreciate against the U.S. dollar? Explain.
The Brazilian real has appreciated 33 percent against the U.S. dollar and has pushed up the price of a Big Mac in Sao Paulo to $4.60, higher than the New York price of $3.99. Despite Brazil’s interest rate being at 8.75 percent a year compared to the U.S. interest rate at near zero, foreign funds flowing into Brazil surged in October.