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capital controls, which investment would you choose? What are the risks associated with this trade?

capital controls, which investment would you choose? What are the risks associated with this trade?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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M6
You have $100 to invest for 1 year. You consider investing it in the US market at 2.53% or in the Brazilian market in BRL (Brazilian real) at 6.45%. The USDBRL spot rate is 3.87. Your FX analyst forecasts BRL will depreciate by 20%. If you were to rely on your analyst's prediction and assume no capital controls, which investment would you choose? What are the risks associated with this trade?
Transcribed Image Text:You have $100 to invest for 1 year. You consider investing it in the US market at 2.53% or in the Brazilian market in BRL (Brazilian real) at 6.45%. The USDBRL spot rate is 3.87. Your FX analyst forecasts BRL will depreciate by 20%. If you were to rely on your analyst's prediction and assume no capital controls, which investment would you choose? What are the risks associated with this trade?
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