Global Investing, Local Expertise, Reduced Currency Exposure.
Dr. Sharma's primary concern is the currency risk associated with investing in Brazil. A simple exchange rate calculation doesn't account for inflation differences between the US and Brazil, potentially overstating or understating her actual return on investment. She needs a clear picture of the real exchange rate's impact on her potential profits to make an informed decision, especially given her high student loan debt.
Using the Real Exchange Rate Calculator, Dr. Sharma's advisor factors in current exchange rates, US inflation (3%) and projected Brazilian inflation (5.5%) over the next 5 years. The calculator reveals that the real exchange rate adjusted return is 2.5% lower than the nominal return, allowing Dr. Sharma to understand the true value of her investment considering purchasing power parity. The Purchasing Power Parity Calculator then confirmed that over the long term, the exchange rate should adjust to reflect inflation differentials.
The advisor input the initial exchange rate, US inflation rate, and projected Brazilian inflation rate into the Real Exchange Rate Calculator to determine the inflation-adjusted return on investment. They also used the Purchasing Power Parity Calculator to predict the long-term equilibrium exchange rate.
$12,500 additional profit projected over 5 years by strategically hedging currency risk.
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