According to an article in the Wall Street Journal on
the effects of fluctuations in the exchange value of the
real on Brazilian firms, “Companies most at risk are
those with large amounts of foreign currency debt.”
a. What is foreign currency debt?
b. Why would firms in Brazil have foreign
currency debt?
c. Why would having foreign currency debt
make firms in Brazil more vulnerable to
fluctuations in the exchange value of the
real? Would these firms be equally hurt by an
appreciation of the real as by a depreciation of
the real? Briefly explain.