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1.) describe the types of exchange rate regimes and the three theories used to explain the determination of exchange rates.
2.)predict changes in the exchange rate using each of the three theories.
3.) discuss how exchange rate regimes and exchange rate theory(s) are illustrated in an assigned article.
(there are only 3 questions but the answers need to be very long, and explanitory.) I also need this done in 2 hours. The attached article will help compleete the questions.
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Brazil airlines demand state aid to assuage pain of weakening currency
Financial Times (London, England)
August 22, 2013 Thursday
1 of 1 DOCUMENT
Financial Times (London, England)
August 22, 2013 Thursday
USA Edition 1
Brazil airlines demand state aid to assuage pain of weakening currency
BYLINE: Joe Leahy in São Paulo
SECTION: WORLD NEWS; Pg. 3
LENGTH: 537 words
HIGHLIGHT: Four main carriers ask for tax breaks
Sell-off in emerging markets hits hard
Brazilian airlines are seeking government aid to help curb losses stemming from a weakening currency, in the first sign t he rapid sell-off of emerging market assets is beginning to hurt the corporate sector.
The country’s four main airlines and their industry association, Abear, have appealed to the government for a range of tax breaks and relief from fees and high fuel costs in response to a 14 per cent depreciation in the Brazilian real against the dollar since the start of the year.
“The dam has broken,” said Eduardo Sanovicz, president of Abear, referring to the industry’s inability to withstand any further the rising costs from a weaker currency.
The real has been among the worst-hit currencies in the sell-off of emerging market assets this month that has accompanied speculation that the US Federal Reserve will begin winding down its quantitative easing programme.
The government, which fought a bruising “currency war” against a stronger real during the emerging markets boom after the 2009 financial crisis, has generally welcomed the weaker currency.
Its argument is a flagging real, which breached the R$2.40 level against the dollar this week for the first time in four and a half years, will make domestic manufacturing more competitive. But the advance of the dollar has been so fast it is beginning to threaten the most vulnerable sectors of Brazilian industry.
“The sheer size of the recent fall in the real reflects the extent to which Brazil’s currency had become one of the most overvalued in the emerging market world,” Capital Economics wrote in a report.
Of Brazilian airlines’ costs, 57 per cent are priced in dollars, from kerosene for jet fuel to aircraft leasing contracts.
The sector was already struggling even during the boom years amid fierce competition and cut-throat fares aimed at drawing the new middle class away from bus travel and into the -airports.
Gilson Garofalo, a professor of economy at PUC, a university in São Paulo, said the price-sensitivity of the sector meant that every 10 per cent rise in ticket prices led to a 14 per cent fall in sales.
So tough has the airline business been this year that several of the big airlines have laid off staff, with the region’s biggest, Chilean-Brazilian venture Latam Airlines, reporting a sharp loss this week in the second quarter.
Among the airlines’ demands are cheaper kerosene, subsidised navigation fees, exemptions to some taxes, and state value added taxes fixed at 6 per cent. At present they vary between 12 and 25 per cent, depending on the state.
The complaints from airlines come as the weaker currency is also beginning to bite state oil operator Petrobras, which imports fuel at international prices in dollars but is forced to sell it at a subsidised price at domestic fuel pumps.
The government cannot easily abolish the subsidy, as that would lead to a sharp rise in inflation, with Brazil dependent on road transport for the delivery of the majority of its goods.
“With the currency trading well above R$2.30, the company is having to shoulder the cost of an even wider gap (more than 30 per cent) between international oil prices and domestic fuel prices,” said João Augusto de Castro Neves, an analyst at Eurasia Group.
LOAD-DATE: August 21, 2013
LANGUAGE: ENGLISH
PUBLICATION-TYPE: Newspaper
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