
Explanation:
Using interest rate parity for a quote of BRL per USD:
Substitute the values:
Rounded to the nearest choice:
F \approx \text{R$ }3.78So the correct answer is C.
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Question 1.2. Assume that interest rates are 1.0% per annum with annual compounding in the United States and 9.0% in Brazil. A bank can borrow (by issuing CDs) or lend (by purchasing CDs) at these rates. The USD BRL spot exchange rate is R$3.500 per 1.0 US dollar. Which is nearest to the forward exchange rate implied by the interest rate parity theorem (quoted USD BRL with Brazilian real as the quote currency)?
A
R$2.85
B
R$3.54
C
R$3.78
D
R$4.07