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ECON216 chapter 11, 12




Question;ECON216Week 8 ? Tutorial 7Husted & Melvin, Chapters 11 and 12Chapter 11, Question 1Identify whether each of the following is a debit or a credit in the country of Freedonia?s BOP andindicate where the item would be classified.a)Freedonian firms export $250 million worth of goods.b)Freedonian citizen?s purchase $50 million worth of tickets on US Airways flights.c)A Freedonian firm purchases a shoe factory in Mexico for $30 million.d)Freedonia receives $5 million in foreign aid from the United States.e)Freedonian citizens deposit $15 million in Citibank account in New York.f)Freedonia imports $220 million worth of goods.g)Freedonian firms borrow $45 million by issuing bonds in the United States.h)U.S. firms earn (and repatriate) $5 million in profits from operations in Freedonia.i)The Freedonia central bank buys $10 million in U.S. Treasury bills.Chapter 11, Question 8Use the information in the following table on Switzerland?s international transactions to answer thefollowing questions (amounts are millions of U.S. dollars):Balance of Payments AccountAmountMerchandise importsMerchandise exports$92,871$93,859Services imports$15,406Services exports$26,683Investment income receipts$43,720Investment income payments$27,702Unilateral transfers-$ 3,736a. What is the balance of trade?b. What is the current account?c. Did Switzerland become a larger international net creditor during this year?Chapter 12, Question 3Using Table 12.1, calculate the price of one Australian dollar in terms of Japanese yen on Friday,October 7, 2011.Chapter 12, Question 4According to Table 12.1, were one-month interest rates higher in the United States or in the U.K. onFriday, October 7, 2011? How do you know?Chapter 12, Question 5Suppose that spot rate of a euro is $1.00, the one-year forward rate on euros is $1.05, and the interestrate on one-year euro-area deposits is 10 percent. What would the interest rate have to be in the make you indifferent between putting your money there or here?Chapter 12, Question 9Suppose ?1 = $2.4110 in New York, $1 = ?1.050 in Paris, and ?1 = ?2.50 in London.a. If you begin by holding ?1, then how could you profit from these exchange rates?b. Ignoring transaction costs, what is your arbitrage profit per pound initially traded?Chapter 12, Question 10You can analyze changes in foreign exchange rates by using supply and demand diagrams. Constructan example for the $/? exchange rate where the dollar appreciates relative to the pound. Carefullylabel your diagram and have the initial exchange rate equal to 1.60. What might cause the supplyand/or demand curve to move in the manner illustrated (what are the underlying reasons for exchangerate movements)? Then, indicate what sort of central bank intervention would be necessary to preventthe exchange rate from moving away from the initial equilibrium.


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