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Please show all your calculations. There is an American investor with $1 DDU to invest. There are two options to invest in: In Brazil or
Please show all your calculations. There is an American investor with $1 DDU to invest. There are two options to invest in: In Brazil or in the US. The interest rate in the US is 5%. The spot exchange rate is 4 Reals (currencyr of Brazil} to 1 USE}. A Brazilian bank offers a forward exchange rate for a period of 1 year of 3 Reals to 1 USD. a} Determine the interest rate in Brazil so that the investor is indifferent between investing in Brazil and the US b} For which values of the interest rate in Brazil is the investor going to invest in Brazil. c} What would happen to the value calculated in a) if the interest rate in the US increases? d} What would happen to the value calculated in a) if i} the bank decides not to offer anv forward contract to the investor, and ii) the investor believes the spot exchange rate in one vear will be 3 Reals to 1 USE}? A French investor holds 1Dl] euros. She onlyr can invest in Brazil or the US. The spot exchange rate is 1 euro to 1.2 USD, which is expected to be constant over the following years. e} Betennine the interest rate in Brazil so that the investor is indifferent between investing in Brazil and the US. f) How a Euro depreciation would affect e)? g} Suppose the interest rate is benecial to invest in Brazil. How would the operation work? h} What is the expected return for the investor if the interest rate in Brazil is 6.5%
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