1.22 Does interest rate parity hold? Will the Brazilian real appreciate further or depreciate against the US dollar if the US central bank raises the interest rate while the Brazilian interest rate remains at 8.75 per cent a year? The Brazilian real has appreciated 33 per cent against the US 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 per cent a year compared to the US interest rate at near zero, foreign funds flowing into Brazil surged in October