International Finance

1.          MXN/JPY= MXN/USD÷JPY/USD=13.6455/76.73=0.1778

Percentage change in value of MXN=[pic 1]

              Therefore, MXN depreciate 1.22% against JPY.

2.

     [pic 2]

Since the second half of 2014, Brazilian Real has been depreciating sharply agianst US Dollars in general. There are multiple reasons can exaplain BRL’s depreciation.

1. A weakening outlook for the Brazilian economy.

According to an international economic consultancy group, Brazil is suffering from deteriorating economic fundamentals. The recession in Brazil is getting worse. The drop in commodity prices is really hurting Brazil. Oil prices have plummeted since last year. The price of two major Brazilian exports, sugar and coffee beans, are down 34% and 25% from a year ago respectively. Its biggest trade partner, China, is slowing down, devaluing its currency and struggling to manage its market correction. That doesn't bode well for Brazil, which needs healthy trade partners.

The weakening outlook reduces investor confidence in Brazil. Credit rating agency Standard & Poor’s downgraded Brazil’s credit rating from “investment-grade” to “junk” status on September 9, 2015, further hampering Brazil government’s efforts to regain investors' trust and pull this country out of recession. Investors would sell off Brazilian Real and move out their money from Brazil in order to seek higher returns on their investment in other countries.

1. High Inflation Rate

The inflation in Brazil has been increasing in the past two years. Official figures have shown that the inflation rate has hit a 12-year high of 9.56%. High inflation in Brazil means higher prices of Brazilian goods than other countries. Therefore Brazilian goods become less competitive. The demand for Brazilian exports falls and there is less demand for Brazilian Real. Also, Brazilian consumers find it more attractive to buy imports. Therefore they supply Brazilian Real to be able to buy other currencies and imports, which increases the supply of Brazilian Real. Therefore, the increase in relative inflation rate leads to a weak currency.

1. Worsening Trade Deficit.

Brazil posted an annual trade deficit of $3.93 billion in 2014 compared with a surplus of $2.5 billion in 2013. Worsening trade deficit means Brazilian importers demanded more foregin currencies, than foreign importers’ demand for Reals. It resulted in depreciation of Reals.

1. Scandal of corruptive State-owned Oil Company. Brazil's state-run oil company, Petrobras, has released its financial results in 2014, which include $2bn written off due to corruption. Some top politicians are also embroiled with the scandal which shaked Brazil’s stock market and further reduce the investors confidence in the country.
2. Recovery of US economy and expectation of Fed raising interest rate. The release of data showing the recovery of the U.S. economy. In January, orders for durable goods (such as cars and appliances) rose in the U.S. The increase in consumption in the United States reinforces the prospects that their Federal Reserve may increase the interest rates of the world’s largest economy. Higher interest rates in developed countries reduces the flow of capital to emerging countries like Brazil.  That results in a stronger US Dollars agianst BRL.

Reference:

http://www.focus-economics.com/countries/brazil/news/exchange-rate/brazilian-real-depreciates-amid-global-and-domestic/

http://www.wsj.com/articles/brazil-posts-first-trade-deficit-since-2000-1420481771

http://www.bbc.com/news/world-latin-america-32426634

http://blogs.wsj.com/briefly/2015/03/06/5-things-to-know-about-brazils-petrobras-scandal/

http://riotimesonline.com/brazil-news/rio-business/brazil-real-currency-falls-to-lowest-in-10-years-to-dollar/

3.  

      If Fed exchanges a huge amount of Canadian Dollars for US dollars, it    will cause depreciation of Canandian Dollars against US dollars. It will likely increase inflation in Canada.

• Demand Pull Inflation. Aggregate Demand AD=C+I+G+NX. Assuming domestic consumption, investment and government spending is constant, depreiation of CAD means Canadian products are cheaper to foreign importers and foreign products are more expensive to Canadian importers. Net export will increase, so AD will increase.
• Cost Push Inflation. Since CAD is weaker now, it will cost Canadian maunfacturers more to import raw materail and intermediary products from U.S. and other countries. The cost of productio in Canada will be higher, resulting in a decrease in supply.

Combining both demand and supply factors, the general price level in Canada should increase as a result of Fed’s operation.