Macroeconomic analysis on a foreign currency

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The Dollar and the Real:
A Macroeconomic Analysis (2005-2010)

As you know, we can't write the paper for you. But what I can do is almost as good: I'll give you a solid outline of the major issues in the macroeconomic relations between the two countries relative to the fluctuation of the currency in this five year period.

The basic facts, all from:
Meyer, PJ (2013) Brazil-U.S. Relations. Congressional Research Service.
http://www.fas.org/sgp/crs/row/RL33456.pdf :

The Brazilian GDP is just under $3 trillion, making it the largest Latin American economy.
Her growth rate (GDP) has averaged about 4% yearly. Much of this has been driven by increased demand for Brazilian commodities (iron ore, oil, sugar, beef) and the growth of a native middle class (the growth of an internal market). In 2010, the Brazilian economy grew almost 10%, after suffering a severe setback in 2009, where the economy shrank by about 0.3%.

Her exports stand at about $243 billion, or about 10% of GDP. She runs a trade surplus of about $19 billion.
In 1994, the new currency, the Real, was pegged to the dollar. By 1999, the Real was overvalued, soon, it went into the opposite direction, and as investors left Brazil, her currency fell by about 40%. Starting about 2000, the Brazilian banks stated its three pillars of currency maintenance:
- A floating exchange rate
- A surplus in the state budget (at least)
- A monetary policy concerned primarily with inflation.

Trade:
In trade relations: Brazil has demanded that the developed countries eliminate all subsidies to agriculture. In 2005, Brazil helped kill the American sponsored Free Trade Area of the Americas.

From 2003-2012, US Brazil trade increased by 161%. US goods going into Brazil increased almost 300%, while goods in the other direction increased by 75%. Though Brazil runs a trade surplus, it runs a trade deficit with the US of about $12 billion. This is because the goods the US exports to Brazil are heavy machinery, aircraft and high-tech equipment, in other words, expensive stuff. Brazil's exports are coffee, some crude oil, iron and some manufacturing.

Also from Meyer, PJ (2013) Brazil-U.S. Relations. Congressional Research Service.
http://www.fas.org/sgp/crs/row/RL33456.pdf

Figures:
Now, in terms of the Real (relative to the dollar) starting in 2005 (from the Brazilian Central Bank):
2005: general rise in value from 2.5 to 2.2 Real to the dollar (avg 2.4)
2006: 2.3 to 2.1, though high levels o fluctuation (avg 2.1)
2007: 2.7 to 1.8 (avg 1.9)
2008: under $1 for some time, then shooting up to 2.4 by the end of the year. (avg 1.8)
2009: 2.2-1.7 (avg 2)
2010: fairly stable at around 1.7-1.8 (1.8, this is the strongest the Real has been, and it is a problem. The closer the Real gets to the dollar, the stronger it is)

This tells us several things. First, the Real has been stable in this period. Second, since it's pegged to the dollar, it looks like the central bank is going for a 2:1 relationship in general. Third, the bank is very responsible in how it handles its currency. But we will ...