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1、Chapter 2Payments among NationsSuggested answers to questions and problems (in the textbook)2.Disagree, at least as a general statement. One meaning of a current account surplus is that the country is exporting more goods and services than it is importing. One might easily judge that this is not goo
2、dthe country is producing goods and services that are exported, but the country is not at the same time getting the imports of goods and services that would allow it do more consumption and domestic investment. In this way a current account deficit might be considered goodthe extra imports allow the
3、 country to consume and invest domestically more than the value of its current production. Another meaning of a current account surplus is that the country is engaging in foreign financial investmentit is building up its claims on foreigners, and this adds to national wealth. This sounds good, but a
4、s noted above it comes at the cost of foregoing current domestic purchases of goods and services. A current account deficit is the country running down its claims on foreigners or increasing its indebtedness to foreigners. This sounds bad, but it comes with the benefit of higher levels of current do
5、mestic expenditure. Different countries at different times may weigh the balance of these costs and benefits differently, so that we cannot simply say that a current account surplus is better than a current account deficit.4.Disagree. If the country has a surplus (a positive value) for its official
6、settlements balance, then the value for its official reserves balance must be a negative value of the same amount (so that the two add to zero). A negative value for this asset item means that funds are flowing out in order for the country to acquire more of these kinds of assets. Thus, the country
7、is increasing its holdings of official reserve assets.6. a.CA = If, so if net foreign investment increases, then the value of the current account increases. b.If both exports (a positive item) and imports (a negative item) increase by $10 billion, the value of the current account balance stays the s
8、ame. c.CA = Y - E, so the combination of an increase in production (Y) by $100 billion and an increase in expenditures (E) by $150 billion results in a decrease in the value of the current account balance. d.The transport equipment is an export of goods, so it is a positive item in current account.
9、It must be paired with a negative item of the same amount showing the unilateral transfer (gift). Because both of these items are included in the current account, the value of the current account balance stays the same.8. a.Goods and services balance: $330 - 198 + 196 - 204 = $124Current account bal
10、ance: $330 - 198 + 196 - 204 + 3 - 8 = $119Official settlements balance: $330 - 198 + 196 - 204 + 3 - 8 + 102 - 202 + 4 = $23 b.Change in official reserve assets (net) = -official settlements balance = -$23.The country is increasing its net holdings of official reserve assets.10. a.International inv
11、estment position (billions): $30 + 20 + 15 - 40 - 25 = $0. The country is neither an international creditor nor a debtor. Its holding of international assets equals its liabilities to foreigners. b.A current account surplus permits the country to add to its net claims on foreigners. For this reason
12、the countrys international investment position will become a positive value. The flow increase in net foreign assets results in the stock of net foreign assets becoming positive.Chapter 3The Foreign Exchange MarketSuggested answers to questions and problems (in the textbook)2.Exports of merchandise
13、and services result in supply of foreign currency in the foreign exchange market. Domestic sellers often want to be paid using domestic currency, while the foreign buyers want to pay in their currency. In the process of paying for these exports, foreign currency is exchanged for domestic currency, c
14、reating supply of foreign currency. International capital inflows result in supply of foreign currency in the foreign exchange market. In making investments in domestic financial assets, foreign investors often start with foreign currency and must exchange it for domestic currency before they can bu
15、y the domestic assets. The exchange creates supply of foreign currency. Sales of foreign financial assets that the countrys residents had previously acquired, and borrowing from foreigners by this countrys residents are other forms of capital inflow that can create supply of foreign currency.4.The U
16、.S. firm obtains a quotation from its bank on the spot exchange rate for buying yen with dollars. If the rate is acceptable, the firm instructs its bank that it wants to use dollars from its dollar checking account to buy 1 million yen at this spot exchange rate. It also instructs its bank to send the yen to the bank account of the Japanese firm. To carry out this instr
