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4. As of November 1, 1999, the exchange rate between the Brazilian real and U.S. dollar is R$1.95/$. The consensus forecast for the U.S. and Brazil inflation rates for the next 1-year period is 2.6% and 20.0%, respectively. What would you forecast the exchange rate to be at around November 1, 2000

Respuesta :

Answer:

Forecast exchange rate = $2.29(Approx)

Explanation:

Given:

Exchange rate = $1.95

Inflation rate difference = 2.6% - 20% = 17.4%

Computation:

Forecast exchange rate = 1.95 / (1-17.4%)

Forecast exchange rate = $2.29(Approx)

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