Use Table 22.1 to answer the following questions:

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

b. If the 1-year forward rate on the real is BRL4.012 = USD1, is the real at a forward discount or premium?

c. If the 1-year interest rate on dollars is 1%, what will be 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?

Table 22.1: Exchange rates in February 2014

Country Europe Currency Exchange Rate Eurozone countries Sweden Switzerland United Kingdom Euro (EUR or ) Krona (SEK) Franc (CHF) Pound (GBP or ) 1.376 6.485 0.888 1.668 Americas Brazil Canada Mexico Real (BRL) Dollar (CAD) New peso (MXN) 2.396 1.095 13.231 Asia/Africa Australia China China (Hong Kong) India Japan South Africa South Korea Dollar (AUD) Yuan (CNY) Dollar (HKD) Rupee (INR) Yen (JPY or ) Rand (ZAR) Won (KRw) 1.107 6.067 7.755 62.180 102.340 10.872 1,065.500 Direct quotes (number of U.S. dollars per unit of foreign currency). Other quotes are indirect (units of foreign currency per U.S. dollar). Source: Financial Times, February 18, 2014, available at www.ft.com.