Reread the Management Focus “Embraer and the Gyrations of the
Brazilian Real,” and then answer the following questions:
a. What does the recent economic history of Brazil tell you about the
relationship between price inflation and exchange rates? What other
factors might determine exchange rates for the Brazilian real?
b. Is a decline in value of the real against the U.S. dollar good for
Embraer, bad for Embraer, or a mixed bag? Explain your answer.
c. What kind of foreign exchange rate risks is Embraer exposed to? Can
Embraer reduce these risks? How?
d. Do you think Embraer’s decision to try to hedge against further
appreciation of the real in the early 2000s was a good decision? What
was the alternative?