A US firm invests heavily in building factories in Brazil. What happens to demand for Brazil's currency?

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Question

A US firm invests heavily in building factories in Brazil. What happens to demand for Brazil's currency?

Accepted Answer

It rises, as the firm needs reais to pay for the factories — Award 1 mark. To pay Brazilian builders and workers, the US firm must exchange dollars for reais, raising demand for Brazil's currency. The firm buys rather than sells reais, investment flows do affect currency demand, and the investment is not an import.

Answer

It falls, as the firm sells reais to invest

Answer

It falls, as Brazil imports more goods

Answer

It rises, as the firm needs reais to pay for the factories

Answer

It is unchanged, as investment is not trade

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