Relative PPP

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For the coming year, inflation in Brazil is expected to be 15% while the US inflation is expected to be 3%. Spot Brazil Real is 2.86BRL/USD. Based on relative PPP, what would you expect BRL/USD to do and by how much in one year?

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If $1 is invested, one year later, it is worth 1/(1+i) = ...

Solution Summary

Based on relative PPP, what would you expect BRL/USD to do and by how much in one year?

$2.49