Midterm Exam
International Finance
April 8, 2002
Answer all questions in examination booklets
1. (10 points) Use the BOP accounts guide on the last page of this exam to indicate where each of the following transactions should be recorded in the U.S. balance of payments (e.g.: “i3”, “e2”, etc.). Bear in mind that each transaction should generate a capital account and a current account entry.
a) The U.S. buys $1m. of lumber from Canada
b) Japan buys $500K of fish from an Alaskan fishing outfit
c) The U.S. contracts a Panamanian flagged vessel for shipping on the Mississippi
d) Mexican migrant workers wire $2m. home for Cinco de Mayo celebrations
e) A Panamanian flagged ship purchases a $100K insurance contract from
a U.S. firm
2. (10 points) The nation of Pecunia had a current account deficit of $2 billion and a nonreserve capital account surplus of $900 million in 1998.
a) What was the “balance of payments” of Pecunia that year? What happened to the country’s net foreign assets?
b) Assume that the foreign central banks neither buy nor sell Pecunian assets. How did the Pecunian central bank’s foreign reserves change in 1998? How would this official intervention show up in the balance of payments accounts of Pecunia?
c) How would your answer to (b) change if you learned that foreign central banks had purchased $1.2 billion of Pecunian assets in 1998? How would these official purchases enter the foreign balance of payments accounts?
3. (15 points) Derive (show your work) the following, and provide a brief explanation:
a) Uncovered interest rate parity
b) Covered interest rate parity
4. (10 points) Define “neutrality of money” and discuss why money is thought to be “neutral” in the long-run.
5. (10) Define “Purchasing Power Parity” and discuss the reasons why it might or might not hold.
6. (15 points) In our formal model of exchange rate determination under “sticky prices”
a) What do the two curves represent?
The purchasing power parity implies the following relationship between the home (GB £) and local (US $) costs of debt:
1) Japan still has the largest foreign currency reserves in the world even after years
The statistics indicate that Canada has primarily been an investor abroad, with substantial amounts of cash flows leaving the country. Again, both of these accounts grew almost every year. Between 1992 and 1997, funds received dropped only once in 1993. Likewise, funds invested abroad dropped only once within this time interval in 1996.
Mexico was running an increasing current account deficit from US$7.5 billion in 1990 to US$23.4 billion in 1993. This indicates an excess of private investing over private savings. However, the country was able to maintain an improving fiscal account from US$3.6 billion deficit in 1990 to US$0.7 billion surplus in 1993. The deficit in current account was financed through capital funds from abroad resulting the capital account to increase from US$8.4 billion in 1990 to US$33.8 billion in 1993.
4. A question as to the effect of the payments, at the treasury, of the bonds of Hardenberg and of the four bonds of Birch, Murray & Co.
When determining whether to merge or partnership with another hospital is a beneficial choice, one will need to review financial information to make an informed decision. According to Cleverly, Cleverly, and Song in order to make effective decision it requires adequate knowledge and interpretation of financial information. Understanding the accounting processes of business decisions results in effective operational decisions (2012). Some of the financial statements that are used to make these decisions are income, itemized, balance statements, net assets, and cash flow.
“The National Debt (sidebar).” Issues and Controversies. Facts on File News Services, 23 Jan. 2009. Web. 25 May 2011. .
C. As you can see the United States, as well as many other countries, have made
Topic: Analyze the validity of the objections to free trade and critically discuss the role of international organizations in regulating trade between counties. Does how the control of trades has impacted positively or negativity on a company of your choice.
Inflation increased from 19.91% in 1995 to 26.4% in 1996 before dramatically decreasing to 9.67% in 1997 and hitting a nearly twenty year low of 5.95% in 1999 (See Appendix B). Foreign direct investment inflows continually increased from 1996 to 1999 (See Appendix C). Alternatively, foreign direct investment outflows decreased from $45.3 million in 1996 to $9 million in 1997, but saw a steep increase of 389% to $35M in 1998 and 76% increase to $45.9M in 1999 (See Appendix D). (World
Deliberate fixing of the exchange rate or preannounced rates of depreciation below the prevailing rates of inflation, have been adopted in various countries to break inflation. The experience has been almost unif...
F. Y. Edgeworth, Review of the Second Edition of Marshall's Principles of Economics (unimelb.edu.au) Economic Journal, volume 1, 1891, pp. 611-17
... overseas securities and written off an amortization of goodwill belong to its subsidiaries. In consequences of plunge in bank equity and rapid growth amount of risk weighted assets, the bank Tier 1 capital ratio fell from 8.11% in end-2006 to barely 6.02% in end-2008. With the new strategy ‘back to track on retail banking’ and the liquidation of bad assets, the bank has met its Tier 1 capital target of 7.76% in end-2010.
3. Assuming Noah made 6-month payments on its wood purchases from Indonesia, what is the schedule of foreign currency amounts over
provided by the government. This meant that the new bank debt would be the most senior piece in and would