What’s Happening to the Brazilian Real?

Let’s look at what a $100,000 in the equivalent amount in Reals would have done with the following scenario: To evaluate the financial performance of a $100,000 investment over the past 12 months for a foreign investor considering two scenarios—keeping the money in a Brazilian bank versus investing in South Florida real estate—we’ll analyze both options in terms of final value in USD, accounting for interest rates, currency depreciation, and property appreciation.

Scenario 1: Brazilian Bank Deposit

Interest Rate: The average deposit interest rate in Brazil over the past year was approximately 7.7%.
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Currency Depreciation: The Brazilian real depreciated by about 15.42% against the U.S. dollar during the same period.
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Calculation:

Interest Earned in BRL:

Initial Investment: $100,000
Interest Rate: 7.7%
Interest Earned: $100,000 × 7.7% = $7,700
Total in BRL: $100,000 + $7,700 = $107,700
Value in USD After Currency Depreciation:

Depreciation: 15.42%
Value in USD: $107,700 × (1 – 0.1542) ≈ $91,100
Scenario 2: South Florida Real Estate Investment

Property Appreciation: South Florida real estate appreciated at an annual rate of 6.9%.
Calculation:

Property Value After Appreciation:
Initial Investment: $100,000
Appreciation: 6.9%
Property Value: $100,000 × (1 + 0.069) = $106,900
Comparison:

Brazilian Bank Deposit: Final value ≈ $91,100
South Florida Real Estate: Final value = $106,900
Potential Benefit:

Investing in South Florida real estate would have resulted in approximately $15,800 more than keeping the funds in a Brazilian bank account over the past 12 months.

Impact of Exchange Rate Fluctuations and Inflation:

Exchange Rate Fluctuations: The significant depreciation of the Brazilian real against the U.S. dollar reduced the value of the bank deposit when converted back to USD, eroding the gains from interest earned.

Inflation: While not explicitly calculated here, Brazil’s higher inflation rate compared to the U.S. would further diminish the real value of the bank deposit, impacting purchasing power.

Conclusion:

Considering the effects of currency depreciation and potential inflation, investing in South Florida real estate would have provided a more favorable return in USD terms compared to a Brazilian bank deposit over the past year.