Suppose that the U.S. government sells old warships worth $362 million to Japan, and Japan's government pays for them with its official holdings dollar assets. How is this transaction recorded in the U.S. balance-of-payment accounts? The transaction is recorded as a $362 billion in the U.S. statistical discrepancy current account official settlements balance capital account
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- The ECU as a basket of currencies. What is the percentage/weight of the ECU's total value accounted by the Spanish peseta? Refer to Exhibit 3.4 in the text. Would you get a different result if you valued the ECU in Japanese yen instead of the U.S. dollar? Would you expect this weight to change if the ECU depreciates by 10 percent against the U.S. dollar?The NEWS magazine uses the price of a Mercedes Benz A-class to determine whether a currency is undervalued or overvalued. In July 2019, the price of Mercedes Benz was $55 thousand in New York, 390 thousand yuan in Beijing, and 66.5 thousand Swiss francs in Geneva. The exchanges rates were 6.79 yuan per U.S. dollar and 0.96 Swiss francs per U.S. dollar. Does the purchasing power parity hold? Was yuan undervalued or overvalued relative US dollar? Explain your answer and show the calculation. Do you think the price of a representativeness car, Mercedes Benz in different countries provides a valid test of purchasing power parity?The NEWS magazine uses the price of a Mercedes Benz A-class to determine whether a currency is undervalued or overvalued. In July 2019, the price of Mercedes Benz was $55 thousand in New York, 390 thousand yuan in Beijing, and 66.5 thousand Swiss francs in Geneva. The exchanges rates were 6.79 yuan per U.S. dollar and 0.96 Swiss francs per U.S. dollar. Does the purchasing power parity hold? Was yuan undervalued or overvalued relative US dollar? Explain your answer and show the calculation.
- A country, Azania, has been experiencing instability in export and import flows and has its domestic budget tied to its export earnings. The following table reflects this export-import flows. To obtain full credit, you must show all steps. Px Pm Qx 96 94 100 92 95 196 a) Calculate Azania's net barter and income terms of trade for years 2012 and 2013. Year 2012 2013 b) Calculate the changes in net barter and incomes terms of trade for the years 2012 and 2013.Explain how each of the following transactions generates two entries–a credit and a debit–in the Japanese balance of payments accounts, and describe how each entry would be classified: a. A Japanese investor buys a share of a stock company in Thailand, paying by writing a check on an account with a Singapore bank. Second, a Japanese investor buys a share of a Thai stock company, paying the seller with a check on a Japanese bank. Third, a Japanese-owned factory in Germany uses local earnings to buy additional machinery. b. The Malaysian government carries out an official foreign exchange intervention in which it uses yen held in a Japanese bank to buy ringgit (Malaysian currency) from its citizens. c. A tourist from Kyoto buys a meal at an expensive restaurant in Bangkok, paying with a traveler’s check.Suppose you trade dollars and euros for a bank that has branches in Los Angeles and Paris. You can electronically transfer the funds between the two branch locations at no cost, and trading commissions are negligible. The current dollar-per-euro exchange rate in Los Angeles is ESEUR LA 1.6027, РА while in Paris, it is Es/EUR 1.569. You can make a profit for the bank if you buy euros in and sell them in Assuming other foreign exchange traders face the same exchange rates you do, they will buy dollars in and sell them in PA РА . As a result, the dollar-per-euro exchange rate in Paris (Es/EURA) will and the dollar-per-euro exchange rate in Los Angeles (ES/EURA) will
- It costs 100 GBP to buy a certain basket of goods in the UK. It costs 200 USD to buy the same basket in the US. 1 year deposit rates are 10% in both countries. Everyone expects these numbers to remain the same indefinitely. What is the current exchange rate between USD and GBP implied by purchasing power parity? What is the current exchange rate between USD and GBP implied by the overshooting model? Today, the Bank of England announces that it is going to lower the short-term interest rate to 5% in May 2024 and to return it to 10% in May 2025. It also says that the price level will go up and, eventually, it will cost 150 GBP to buy the same basket of goods in the UK. The price adjustment will be completed by May 2026. What is the current exchange rate between USD and GBP implied by the overshooting model? Under the circumstance described in (3), what will be the exchange rate between USD and GBP in May 2024?The ECU as a basket of currencies. What is the percentage/weight of the ECU's total value accounted by the Spanish peseta? Refer to Exhibit 3.4 in the text. Would you get a different result if you valued the ECU in Japanese yen instead of the U.S. dollar? Would you expect this weight to change if the ECU depreciates by 10 percent against the U.S. dollar? For reference (image included)Suppose DeGraw Corporation, a U.S. exporter, sold a solar heating station to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, DeGraw agreed to be paid in yen, thus agreeing to take some exchange rate risk for the transaction. The terms were net 6 months. a. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would DeGraw receive after it exchanged yen for U.S. dollars? b. What is the difference (in dollars) between what DeGraw could have received had they asked for payment immediately (before the devaluation of the yen) instead of six months later?
- Accel Co. produces a standard tennis racket in the Netherlands and sells it online to consumers in the United States. This racket competes with a tennis racket produced by Malibu Co. in the United States, which is of similar quality and is priced at about $140. Accel has set the price of its tennis racket at 100 euros. Assuming that the euro's exchange rate (during the sales month in question) was $1.60, then the price of Accel's racket to U.S. consumers is $_________ (enter a whole number). Because U.S. consumers could buy a Malibu racket for only $140, Accel only sold about 1,000 rackets to U.S. consumers in that month. Since then, however, the euro's value has weakened; this month, the euro's exchange rate is only $1.20. U.S. consumers can now purchase the Accel tennis racket for $_________(enter a whole number), which is less than that charged for the U.S. Malibu racket. In this month, Accel sold 5,000 rackets. The U.S. demand for this tennis racket is price-elastic (sensitive to…Suppose the U.S. dollar interest rate is 3%, while the interest rate in the United Kingdom is 6%. Your friend thinks he can convert his dollars, invest in the United Kingdom and convert his pounds back into dollars at the end of a year, allowing him to make a higher return than investing in dollars. Assuming uncovered interest parity (UIP) holds, explain why he is incorrect.You are provided with the following information about a country's international transactions during a given year (in millions): Service exports $346 Service imports Merchandise exports Merchandise imports $354 $480 $348 Income flows, net Gifts to foreigners Increase in the country's holding of foreign assets, net (excluding official reserves assets) Increase in foreign holdings of the country's assets, net (excluding official reserves assets) Statistical discrepancy, net credit $153 $142 $352 $252 $154 Calculate the official settlements balance and the current account balance. Is the country increasing or decreasing its net holdings of official reserve assets? Why?