Reference no: EM133125511

Please provide long detailed answers with reference to the following textbook: Steven Husted and Michael Melvin, International Economics, Ninth Edition, Pearson

Q1. State whether the following statement is TRUE, FALSE OR UNCERTAIN. Justify your answer. When a country operates under flexible exchange rates its central bank holds zero foreign exchange reserves.

Q2. State whether the following statement is TRUE, FALSE OR UNCERTAIN. Justify your answer.

(a) Suppose the Canadian CPI is 150, the U.S. CPI is 110 and the current exchange is $1.46 CAD per U.S. dollar. Given this information, what is your advice to a currency trader and why?

(b) If the current U.S. interest rate is 10 percent and PPP is expected to hold, what should be the Canadian interest rate to maintain interest parity?

Q3. State whether the following statement is TRUE, FALSE OR UNCERTAIN. Justify your answer. Based on (economic fundamentals) purchasing power parity the Canadian dollar is undervalued.

Q4. Why is it important for China to be on fixed than flexible exchange rates. Briefly explain.

Q5. State whether the following statement is TRUE, FALSE OR UNCERTAIN. Justify your answer. Suppose we have two large open economies in the world, Home and Foreign. If the home country has a lower closed economy (autarky) real interest rate than the foreign country, then the home country is a net borrower at a world real interest rate below its autarky interest rate and there is no world equilibrium real interest rate.

Q6. (a) Which theory explains better the U.S. current account deficits? Explain taking into consideration the three theories of the current account.

(b) What major changes are needed to slash (reduce) U.S. trade deficits? Briefly explain.

Q7. State whether the following statement is TRUE, FALSE OR UNCERTAIN. Justify your answer. Canada should peg (fix) its currency to the U.S. dollar once it has much the same inflation rate as the United States.