1.3. Reread the Management Focus “Embraer and the Gyrations of the Brazilian Real,” and then answer the following questions:

a. What does the recent economic history of Brazil tell you about the relationship between price inflation and exchange rates? What other factors might determine exchange rates for the Brazilian real?

b. Is a decline in value of the real against the U.S.

dollar good for Embraer, bad for Embraer, or a mixed bag? Explain your answer.

c. What kind of foreign exchange rate risks is Embraer exposed to? Can Embraer reduce these risks? How?

d. Do you think Embraer’s decision to try to hedge against further appreciation of the real in the early 2000s was a good decision? What was the alternative?

e. Since 2008, Embraer has significantly reduced its dollar hedging operations. Is this wise?

f. Between mid-2014 and early 2015, the real depreciated significantly against the U.S. dollar.

What do you think the impact was on Embraer?