* 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?

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Table 22.1 Countrv Currencv Exchange Rate Europe Euro zone countries Euro (EUR or )* Sweden Switzerland United Kingdom Krona (SEK) Franc (C Pound (GBP or £)* 1.3044 7.0582 1.0094 1.5638 Americas Brazil Canada Mexico Real (BRL) Dollar (CAD 1.7155 1.0326 12.8344 eso Asia/Africa Australia China China Hong Kon India Dollar (AUD) Yuan (CN Dollar Rupee (INR Yen (JPY or ¥ Rand (ZAR Won (KRW 1.0684 6.723 7.7634 45.83 85.66 7.1546 1,160.00 South Africa South Korea Forward rate on real for USD Interest rate on dollar 1.834 1.00% BRL