Suppose the spot exchange rate between Brazilian real and euros is S0BRLEUR= BRL 2.9488EUR. Calculate forward exchange rates at 1-year,2-year, and 3-year horizons under these two scenarios. a. Yield curves in euros and real are flat. Annual Eurocurrency interest rates are iBRL= 5 percent and iEUR= 1 percent for the next several years.

b. The euro yield curve is flat at iEUR= 1.0 percent per year. Brazilian real interest rates are 5.5 percent per year at a 1-year horizon, 5.0 percent at a2-year horizon, and 4.8 percent at a 3-year horizon.