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Question: A client, JetPort Systems Inc., of your bank has recently completed a contract to upgrade the radar installation at Sao Paulo's international airport. The Brazilian government will wire a payment of 200M Reals (BRLs) to JetPort's bank in 90 days to settle the contract. The CFO of JetPort asks the bank for 90-day forward USD-BRL exchange rate quote as a hedge against unexpected depreciation in the BRL. The spot exchange rate is S(USD/BRL) = $.40/BRL. The 90-day USD and BRL interbank lending and borrowing interest rates are iUSD = 2% and iBRL= 5%, respectively.

What is a risk-freeUSD-BRL 90-day forward rate quote that the bank can offer JetPort's CFO? (in USDs per BRL). Show exactlyhow the bank would set uptheforward rate in the interbank loan market.

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Macroeconomics, Economics

Category:- Macroeconomics
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