Description of this paper

International Financing Markets




1. Suppose household saving is $20, the government spending deficit is $4, and investment is $20.;a. What is national saving? b. What are net exports?;c. What is net capital outflow?;d. Does your answer to c indicate that the US;is a net lender or a net borrower in international financial markets?;2. Suppose that an automobile costs $30,000 in the United States and 25,000 Euros in France. Further suppose that the exchange rate is.8 (one US dollar =.8 Euros).;a. What is the real exchange rate?;b. In which country is the automobile less expensive?;c. Do your answers suggest that the US will have a trade surplus or a trade deficit with France?;d. Does you answer to c suggest that US citizens will be borrowing money from France or;lending money to France?;e. Given the prices of the automobiles in France and the United States, what should the nominal exchange rate be in order to have purchasing power parity;3. If the inflation rate is 15% in France and 4% in the US;a) what is the percentage change in the exchange;rate assuming there is purchasing power parity?;b) your answer to a implies that the international;value of the dollar is (rising, falling).


Paper#32091 | Written in 18-Jul-2015

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