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?
1) Japan still has the largest foreign currency reserves in the world even after years
Friedman, Milton and Jacobson Schwartz, Anna. A Monetary History of the United States, 1867-1960. Princeton, 1963
t. The dollar amount for cash & cash equivalents increased between 2011 and 2012, yet the percentage of total assets comprising these assets declined. Explain.
3. Assuming Noah made 6-month payments on its wood purchases from Indonesia, what is the schedule of foreign currency amounts over
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.
Binhammer, H. H. & Peter S. Sephton. Money, Banking and the Financial System. Nelson, 2001.
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...
Suppose a transaction changes a bank’s balance sheet as indicated in the T-account, and the required reserve ratio is 10 percent.
provided by the government. This meant that the new bank debt would be the most senior piece in and would
Part A: What are the objectives of both parties in the exchanges? How would you describe the general "tone" of the exchanges?
The greatest question many have sought to answer is the creation vs. evolution debate. How did we get here? Were we created or did we evolve randomly? Are we the product of purposeful intelligence or are we the result of countless mistakes? Does it even matter? The story of money is similar to the story of humanity. Was money created or did it evolve. If it was created we can assume it will die. If money evolved then we can assume the future is unknown. In his book, The Ascent of Money a financial history of the world, Neil Ferguson historic analysis of money answers many of these questions. Ferguson believes money essentially mirrors mankind, magnifying back to us our progress, failures, values and weaknesses.” (The Ascent of Money, 358) The history of money shares many similarities to the history of man; Ferguson parallels between finance and Darwinism, illustrating the natural mechanism of our financial ecosystem that evolves, creates, competes, and dies.
In financial terms, Exchange Rates (ER) refer to the worth of two different currencies in regards to each other (Sullivan & Sheffrin, 2003), whereas the Foreign Direct Investment (FDI) refers to the net inflows of foreign investments. This is so if the investment is to acquire a lasting interest in terms of management where the enterprise that is operating in the specific economy in question is a different entity from the investor (Soltani, 2009).
Their current GDP is at 1.144 trillion. They have a large population of 127,385,833. Their gross enrollment ration is at 103.389. The CO2 emissions (metric tons per capital) are at 3.949. The poverty head count ratio is at 53.2. They also have a current life expectancy of 76.722. Also the GNI for each capital is 9,710. The overall level of statistical capacity is at 92.222.
... 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.
In 1996, the US current account and emerging market plus developing country current account were each about zero. In 2008, US current account was in deficit by $ 600 bn, the emerging market/developing country current account in surplus by $ 900 bn. (sect. 1.1)