Chapter 1
1.Using the following data (billions of dollars) for a given year, calculate the balance on merchandi trade; balance on goods, rvices, and income; and the current account balance. Indicate whether the balances are deficits or surplus.
Exports of goods 719 Imports of goods 1,145
Exports of rvices 279 Imports of rvices 210
Net unilateral transfers -49 Income receipts 284
Income payments 269 Statistical discrepancy 11
The balance on merchandi trade is the difference between exports of goods, 719 and the imports of goods, 1,145, for a deficit of 426. The balance on goods, rvices and income is 719 + 279 +284 – 1145 - 210 – 269, for a deficit of 342. Adding unilateral transfers to this gives a current account deficit of 391, [-342 + (-49) = -391]. (Note that income receipts are credits and income payments are debits.)
2.Write out a positive and negative aspect of a nation being a net debtor. Do the same thing for a nation that is a net creditor.
Positive aspects of being a net debtor include the possibility of financing domestic investment that is not possible through domestic savings; thereby allowing for domestic capital stock growth which may allow job, productivity, and income growth. Negative aspects include the fact that foreign savings may be ud to finance domestic consumption rather than domestic savings; which will compromi the growth suggested above.
Positive aspects of being a net creditor include the ownership of foreign asts which can reprent an income flows to the crediting country. Further, the net creditor position also implies a net exporting position. A negative aspect of being a net creditor includes the fact that foreign investment may substitute for domestic investment.
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3.Explain why a nation might desire to receive both portfolio investment and direct investment from abroad.
A nation may desire to receive both portfolio and direct investment due to the type of investment each reprents. Portfolio investment is a financial investment while direct investment is dominated by the purcha of actual, real, productive asts. To the extent that a country can benefit by each type of investment, it will desire both types of investment. Further, portfolio investment tends to be short-run in nature, while FDI tends to be long-run in nature.
4.Write out a single equation showing the relationship between the current account and net capital inflows, including changes in official rerves and other government asts, as they relate to investment spending and domestic saving.
Domestic Savings - Domestic Investment = Current Account Balance
Domestic Savings - Domestic Investment = Net Capital Flows
Therefore, Current Account Balance = Net Capital Flows
5.Suppo a nation spends 10 percent of its income on investment and the private
ctor saves 5 percent. Further, suppo the national government runs a deficit of 1 percent. Explain what the above conditions mean for the nation’s capital account and current account. How might the imbalance be corrected?
Using the equations above, private savings of 5 percent of income, government savings of -1 percent, and investment expenditures of 10 percent would results in a current account deficit of 6 percent of income and a capital account surplus (net capital inflows) of 6 percent of income. This could be corrected with a reduction in the government deficit (to a surplus) and/or an increa in private savings.
Chapter 2
1.Suppo the U.S.-dollar-per-currency exchange rate of the euro was 1.2201 on Thursday and 1.2168 on Friday. Did the euro appreciate or depreciate relative to the U.S. dollar? How much was the appreciation/depreciation (in percentage change terms)?
The euro depreciated relative to the dollar. The rate of depreciation (in absolute value) was [(1.2168 – 1.2201)/1.2201]100 = 0.27 percent.
2.Complete the following cross-rate table.
| A$ | £ | C$ | Sfr | $ |
Australia | | | | | 1.53 |
Britain | | | | | 0.65 |
Canada | | | | | 1.45 |
Switzerland | | | 如何快速学英语 | | 1.37 |
United States | 芒果的营养 | | | | — |
| | | | | |
| 故意尿裤子A$ | £ | C$ | Sfr | $ |
Australia | - | 小翅膀特殊符号2.35 | 1.06 | 1.12 | 1.53 |
Britain | 0.42 | - | 0.45 | 0.47 | 0.65改革的英文 |
Canada | 0.95 | 2.23啤酒的危害 | - | 1.06 | 1.45 |
Switzerland | 0.90 | 2.11 | 0.94 | - | 1.37 |
United States 书不尽意 | 0.65 | 1.54 | 0.69 | 0.73 | - |
| | | | | |
3.Suppo in New York the euro and British pound trade at the following exchange rates: 1.234$/€, and $/£=1.702. In London, the euro equivalent rate of the pound is 1.425€/£. Is there an arbitrage opportunity? Why or why not? Calculate the profit to be made on $1,000,000.
