3. Reread the Management Focus â€œEmbraer and the Gyrations of the Brazilian Real,â€ 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 Embraerâ€™s decision to try to hedge against further appreciation of the real in the early 2000s was a good decision? What was the alternative? –
e. Since 2008, Embraer has significantly reduced its dollar hedging operations. Is this wise? –
f. Between mid-2014 and early 2015, the real depreciated significantly against the U.S. dollar. What do you think the impact was on Embraer?