1. In 2014, annual inflation rates in Brazil and the U.S. were expected to be 6.00% and 1.50%, respectively, over the next seven years (to July 2021). The 2014 spot rate for Brazilian Real to US Dollars was 2.3955. The current spot rate is on the front of the exam.
   1. Relative purchasing power parity would have suggested that the exchange rate in 2021 (after exactly seven years) would have been what?
   2. Given the 2014 and 2021 spots rates, what is the average annual depreciation of the Real, where t = 7.
   3. Is the parity calculation what you expected, yes or no? If no, what other factors need to be taken into account when predicting future spot exchange rates for currencies some pillow talk works here?
   4. In a July 26, 2021 FT article, Can a new commodities boom revive Brazil, there was a suggestion that a new commodity boom would help Brazil a great deal. Explain why? From the graph below, can you tell when the last commodity boom was?

BRL 1.00 BRL 1.50 BRL 2.00 BRL 2.50 BRL 3.00 BRL 3.50 BRL 4.00 BRL 4.50 BRL 5.00 BRL 5.50 BRL 6.00 Aug-96 Jul-97 Jun-98 May-99 Apr-00 Mar-01 Feb-02 Jan-03 Dec-03 Nov.04 Oct-05 Sep-06 Aug-07 Jul-08 Jun-09 May 10 Apr-11 Mar-12 Feb-13 Jan-14 Dec-14 Nov 15 UBC Pacific Exchange Rate Data Brazilian Real Per U.S. Dollar - 1996 - 2021 - Monthly Observations- Oct 16 Sep-17 Aug-18 Jul 19 Jun-20 May 21