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Source of Weak Currencies

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Currencies of some Latin American countries, such as Brazil and Venezuela, frequently weaken against most other currencies. What concept in this chapter explains this occurrence? Why don't all U.S.-based MNCs use forward contracts to hedge their future remittances of funds from Latin American countries to the U.S. even if they expect depreciation of the currencies against the dollar?

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Latin American countries typically have very high inflation, as much as 200 percent or more. PPP theory would suggest that currencies of these countries will depreciate against the U.S. dollar (and other major currencies) in order to retain ...

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