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    Brazilian Capital Accounts

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    As a seller of information to customers in Brazil, you are an exporter and you periodically purchase advertising space on Brazilian Web sites to advertise your service; therefore are an importer of a service. If you could not afford to pay for the advertising space in advance, you might finance your purchases of Brazilian advertising services in a manner that reduces your exchange rate risk. With an established office in Brazil describe the conditions under which you may need local short-term financing. Review the prevailing level of interest rates in Brazil, using the Web site http://www.latin-focus.com.

    Based on the prevailing interest rate level, do you think the cost of this short-term financing would be relatively high or low or would you be better off with a line of credit or borrowed funds that you maintain as cash in case funding is needed; assume also that you may need to borrow short-term funds to support your Brazilian office. You can borrow short-term funds at a 2% points above the quoted interest rates.

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    Solution Preview

    Here is a summary of the current situation:

    Brazilian interest rates are about 16% and rising.
    Inflation is about 6.3%
    Healthy trade balance, capital account, and foreign reserves.
    Current exchange rate is 2.289 Reals
    Appears that the USD will slightly lose value over the next 12 months.
    The company is ...

    Solution Summary

    Brazilian capital accounts are explained.

    Here is a summary of the current situation: ...........