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1、学 海 无 涯 1 、 “National saving can be used domestically or internationally.”Explain the basis for this Answers: Saving can be used to make investments. The country can use its national saving to make domestic real investments in new production capital (buildings, machinery and software), in new housin
2、g, and in additions to inventories, or it can use its national saving to invest in foreign financial assets. If it uses its national saving to make domestic real investment, benefits to the nation include the increases in production capacity and capabilities that result from new production capital a
3、nd the housing services that flow from a larger stock of housing. If it uses its national saving to make foreign investments, benefits to the nation include the dividends, interest payments, and capital gains that it earns on its foreign investments, which add to the national income of the country i
4、n the future. “For a country that has a surplus in its current account and wants to reduce this surplus, one Answers: Disagree. A shift to saving more would tend to increase the surplus, not reduce it. The current account balance equals net foreign investments, and net foreign investment is the diff
5、erence between national saving and domestic real investment. If national saving increases, then net foreign investment tend to increases, and the current account balance tends to increase (the surplus tends to increase). What are the major types of transactions or activities that result in supply of
6、 foreign currency in Answers: Imports of goods and services result in demand for foreign currency in the foreign exchange market. Domestic buyers often want to pay using domestic currency, while the foreign sellers want to receive payment in their currency. In the process of paying for these imports
7、, domestic currency is exchanged for foreign currency, creating demand for foreign currency. International capital outflows result in a demand for foreign currency in the foreign exchange market. In making investments in foreign financial assets, domestic investors often start with domestic currency
8、 and must exchange it for foreign currency before they can buy the foreign assets. The exchange creates demand for foreign currency. Foreign sales of this countrys financial assets that the foreigners had previously acquired and foreign borrowing from this country are other forms of capital outflow
9、that can create demand for foreign currency. A British bank has acquired a large number of dollars in its dealings with its clients. Answers: The British bank could use the interbank market to find another bank that was willing to buy dollars and sell pounds. The British bank could search directly w
10、ith other banks for a good exchange rate for the transaction, or it could use a foreign exchange broker to identify a good rate from another bank. The British bank should be able to sell its dollars to another bank quickly and with very low transactions costs. For an investment in a foreign-currency
11、-denominated financial asset, part of the return comes Answers: Agree. As an investor, I think of my wealth and returns from investments in terms of my own currency. When I invest in a foreign-currency-denominated financial asset, I am(actually or effectively) buying both the foreign currency and th
12、e asset, Part of my overall return comes from the return on the asset itself-for instance, the yield or rate of interest that it pays. The other part of my return comes from changes in the exchange-rate value of foreign currency. If the foreign currency increases in value (relative to my own currenc
13、y) while I am holding the foreign asset, the value of my investment (in terms of my own currency) increases,1,学 海 无 涯 and I have made an additional return on my investment. (Of course, if the exchange-rate value of the foreign currency goes down, I make a loss on the currency value, which reduces my
14、 overall return.) 6、What is the difference between a clean float and a managed float? Answers: In the clean boat, the government allows the exchange-rate value of its currency to be determined solely by private (or nonofficial) supply and demand in the foreign exchange market, the government takes n
15、o direct actions to influence exchange rates. In a managed float, the government is willing to and sometimes does take direct actions to attempt to influence the exchange-rate value of its currency. For instance, the monetary authorities of the country may sometimes intervene in the market, buying o
16、r selling foreign currency (in exchange for domestic currency) in an effort to influence the level or trend of the floating exchange rate. 7. A government has just imposed a total set of exchange Answers: The exchange controls are intended to restrain the excess private demand for foreign currency (the source of the downward pressure on the exchange-rate value of the countrys currency). Thus, some people who want to obtain foreign currency, and who would be willing to pay more than the current
