Question
Suppose that the following conditions all hold: uncovered and covered interest rate parity, real interest rate parity, relative and absolute purchasing power parity. And suppose
Suppose that the following conditions all hold: uncovered and covered interest rate parity, real interest rate parity, relative and absolute purchasing power parity. And suppose you have the following information:
- The current nominal interest rate for a 1 year deposit in a Brazilian bank is 20%.
- Inflation is expected to be 10 percentage points higher in Brazil than Argentina over the next year.
- The forward exchange rate between Brazil and Argentina is 1.1 (Brazilian real / Argentinian peso).
compute the real interest rate in Brazil using the information above, or state if there is not enough information given above to do this
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