Reference no: EM132973479

Questions -

Q1. You work for the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce. Your supervisor gives you the following U.S. International Transactions Accounts for the Year 20XX (figures are in billions of dollars) and wants it reported in a coherent fashion in accordance with accepted conventions:

Investment income payments (27.3); Export of goods 80.6; Balance of services 5.1; Capital outflow (44.5); Imports of goods (110.9); Change in Official Reserves 2; Investment income receipts 24.7; Capital inflow 73.6; Net unliteral transfers (3.3).

(a) He wants you to compute the balances of trade, current account, capital account and statistical discrepancy.

(b) He also wants you to find out (based on your calculation) if the U.S. is a net debtor or a net creditor.

Q2. Suppose a British investor is expected to receive payment of 10,000 dollars ($) in twelve months from a U.S. bank. The annual interest rate in dollar deposit is 5% and the annual interest rate in pound deposit is 10%. If the present exchange rate is 0.50 pound per dollar deposit and interest parity holds, then.

(a) How many pounds does the British investor expect to receive at the maturity date of his U.S. investment?

(b) How many pounds were initially invested? Fully explain all your answers.

Q3. (a) Suppose a computer sells for US$1,200 in the U.S. and for £855 in London. If the exchange rate is £0.65 per dollar, is there any arbitrage (profit opportunity)? Explain

(b) If the Canadian dollar price of one Euro was C$1.30 in 2003 and the exchange rate adjusted to 0.85 Euro per C$ in 2004, did the Canadian dollar appreciate or depreciate against the Euro. Explain.