Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

8. Analysis of Brazilian real. (12.5 points, with each item 2.5 points). Read the excerpted article from the IMF Country Report on September 23, 2021.

image text in transcribed
8. Analysis of Brazilian real. (12.5 points, with each item 2.5 points). Read the excerpted article from the IMF Country Report on September 23, 2021. (Brazilian) Economic performance has been much better than expected, in part due to the authorities forceful policy response... Brazil is past the peak of a severe second wave of the pandemic and, after a slow start, vaccinations are progressing well. GDP regained its pre-pandemic level in 2021 QI and momentum continues to be favorable, supported by booming terms of trade and robust private sector credit growth. The surge in commodity prices and a weaker currency compared with pre-crisis levels has fed into headline inflation and inflation expectations, leading the Central Bank to initiate a tightening cycle..."...Uncertainty around the outlook is exceptionally high but risks to growth are viewed as being broadly balanced." "A steady upward path for the (monetary) policy rate should ensure inflation returns to the mid-point of the target band by end- 2022. Given the uncertainty around the outlook, policy will need to be data dependent and be particularly cognizant of shifts in inflation expectations..." Assume that United States residents invest heavily in Brazilian government and stocks. In addition, Brazilian residents invest heavily in the United States. Because your firm imports goods from Brazil, you are assigned to forecast the value of BRL (the Brazilian real) against the USD - i.e.. you forecast S.(BRLUSD). Explain how each of the following conditions will affect the value of the BRL against the USD, holding all other things equal. (Please plot a figure to explain each condition. No figures, no points.) Questions: 2. "The surge in commodity prices and a weaker currency compared with pre-crisis levels has fed into headline inflation and inflation expectations." The Brazilian inflation has increased substantially, while inflation in the U.S. remains stable, b. "...leading the Central Bank to initiate a tightening cycle." The Brazilian nominal interest rates may increase substantially, while the U.S. interest rates remain stable. c. "GDP regained its pre pandemic level in 2021 QI and momentum continues to be favorable." The income level in Brazil may increase substantially, while the income level in the U.S. has remained unchanged. d. booming terms of trade." The U.S. consumers buy more imported goods from Brazil e. "Uncertainty around the outlook is exceptionally high." The political and policy uncertainty in Brazil is high and maybe going to get worse. You also assume that Brazil is not a safe haven

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance Your Business Secure Funding To Start Run And Grow Your Business

Authors: The Staff Of Entrepreneur Media

1st Edition

1599185970, 978-1599185972

More Books

Students also viewed these Finance questions