Question

During 2011 the inflation rate in Brazil was about 6.6% while in the U.S. it was about 3.3%. At the

start of 2011 the nominal exchange rate was about 1.7 Brazilian real per U.S. dollar.

If purchasing-power parity holds, about what should the nominal exchange rate have been at the end of 2011?

Answer 1

$\frac{106.6}{103.3}\times1.7=1.75$