Reference no: EM132639936

1. Explain the difference between gross domestic product and gross national product.

2. Suppose you are considering the purchase of a bond issued in another country. What calculations must you do to calculate the expected return on a foreign bond? Explain.

3. Explain what factors determine the expected return on a foreign bond.

4. Suppose the interest parity condition holds. Also assume that the one-year interest rate in the United States is 6% and that the one-year interest rate in Canada is 6%. What does this imply about the current versus future expected exchange rate (for the U.S. and Canadian dollars)? Explain.

5. Assuming that the interest parity condition holds, what type of information is contained in interest rate differentials between domestic and foreign bonds? Explain.

6. Explain why a comparison between the interest rates on domestic and foreign bonds might provide misleading information about which bonds yield the highest expected returns.

7 Suppose the interest parity condition holds and that the domestic interest rate is less than the foreign interest rate. What does this imply about the current versus future expected exchange rate? Explain.

8. Suppose the interest parity condition holds. Also assume that the one-year interest rate in the United States is 5% and that the one-year interest rate in Canada is 6%. What does this imply about the current versus future expected exchange rate (for the U.S. and Canadian dollars)? Explain.

9. What is uncovered interest parity? Explain.

10. Suppose the one-year nominal interest rate is 2.0% in the United States and 5.0% in Canada. Should you hold Canadian bonds or U.S. bonds? Explain.

11. Explain Balance of payments, Current account and capital account.

12. Explain implications of Excessive current account deficit and surplus.