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Finance While Highly Inflated Countries Essay

The difference in the interest rates would have predicted a much greater change in the exchange rates between these two countries. This begs the question as to why the rates did not change further. There are a few possible explanations for this discrepancy. The first is that the expected inflation in Brazil failed to material, and the second is that inflation in the U.S. was higher than expected. U.S. inflation is not high, but it is growing, whereas interest rates are not growing yet. In contrast, the Brazilian government's response to its inflation situation is more in line with what would be expected.

The real has underperformed expectations, and there could also be domestic factors. If we look at the six factors that affect exchange rates, we can see that there may be issues with respect to public debt (if Brazil has performed worse than expected) or political stability and performance. If these factors have come into play, the expectation for future interest rate changes might have deviated significantly from the expectations of a year ago.

Works...

(2012). Consumer price index -- February 2012. BLS.gov. Retrieved March 16, 2012 from http://www.bls.gov/news.release/pdf/cpi.pdf
Investopedia. (2012). Inflation and interest rates. Investopedia. Retrieved March 16, 2012 from http://www.investopedia.com/university/inflation/inflation3.asp#axzz1pI61aUrV

Oanda. (2012). USD/CAD details. Oanda.com. Retrieved March 16, 2012 from http://www.oanda.com/currency/converter/

Spicer, J. (2012). In historic shift, Fed sets inflation target. Reuters. Retrieved March 16, 2012 from http://www.reuters.com/article/2012/01/25/us-usa-fed-inflation-target-idUSTRE80O25C20120125

Statistics Canada. (2012). Latest release from the Consumer Price Index. Statistics Canada. Retrieved March 16, 2012 from http://www.statcan.gc.ca/subjects-sujets/cpi-ipc/cpi-ipc-eng.htm

Van Bergen, J. (2012). 6 factors that influence exchange rates. Investopedia. Retrieved March 16, 2012 from http://www.investopedia.com/articles/basics/04/050704.asp#axzz1pI61aUrV

Sources used in this document:
Works Cited:

Bureau of Labor Statistics. (2012). Consumer price index -- February 2012. BLS.gov. Retrieved March 16, 2012 from http://www.bls.gov/news.release/pdf/cpi.pdf

Investopedia. (2012). Inflation and interest rates. Investopedia. Retrieved March 16, 2012 from http://www.investopedia.com/university/inflation/inflation3.asp#axzz1pI61aUrV

Oanda. (2012). USD/CAD details. Oanda.com. Retrieved March 16, 2012 from http://www.oanda.com/currency/converter/

Spicer, J. (2012). In historic shift, Fed sets inflation target. Reuters. Retrieved March 16, 2012 from http://www.reuters.com/article/2012/01/25/us-usa-fed-inflation-target-idUSTRE80O25C20120125
Statistics Canada. (2012). Latest release from the Consumer Price Index. Statistics Canada. Retrieved March 16, 2012 from http://www.statcan.gc.ca/subjects-sujets/cpi-ipc/cpi-ipc-eng.htm
Van Bergen, J. (2012). 6 factors that influence exchange rates. Investopedia. Retrieved March 16, 2012 from http://www.investopedia.com/articles/basics/04/050704.asp#axzz1pI61aUrV
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