Chapter 2  Payments among Nations
1）What is the current account balance of a nation with a government budget deficit of ＄128 billion, private saving of ＄806 billion, and domestic capital formation of ＄777 billion?
2) “A country is better off running a current account surplus rather than a current account deficit.” Do you agree or disagree? Explain.
3). An annual statement of all the transactions between one country and the rest  of the world, is called that country's:
  a. dollar outpayments. 
  b. international transactions statement. 
  c. current capital campaign. 
  d. all of the above 
4). In the international transactions statement, merchandise trade, exchange of services and transfers of capital are divided into those giving rise to __________________ (plus or credit items) and those resulting in__________ (negative or debit items). 
  a. credit accounts and credit debits 
  b. dollars and capital 
  c. currents and accounts 
  d. dollar inpayments and dollar outpayments 
5). The current account component of the statement includes transactions in  goods and services; while purchases and sales of assets make up the: 
  a. capital account. 
  b. current capital. 
  c. current purchases. 
  d. none of the above 
6). In terms of the current account, if US merchandise exports total 900 million  dollars and US merchandise imports total 1500 million dollars, then the balance  of trade on US merchandise trade would be: 
  a. a 2100 million dollar credit. 
  b. 2100 million dollars. 
  c. a 600 million dollar deficit. 
  d. a 900 million dollar deficit. 
Chapter  3 The Foreign Exchange Market
1）What are the major types of transactions or activities that result in demand for foreign currency in the spot foreign exchange market?
2）You have access to the following three spot exchange rates:
$0.01/Yen
$0.20/krone
25Yen/krone
You start with dollars and want to end up with dollars.
A）How would you engage in arbitrage to profit form these three rates? What is the profit for each dollar use initially?
B）As a result of this arbitrage, What is the pressure on the cross-rate between Yen and krone? What must the value of the cross-rate be to eliminate the opportunity for triangular arbitrage?
3). If the dollar-euro exchange rate moved from $1=0.5€ to $1=1€, then the  dollar would have ___________ and the euro would have ______________. 
    a. depreciated; decreased 
    b. appreciated; depreciated 
    c. fluctuated; improved 
    d. supplied; demanded 
4). Increases in U.S. interest rates raise the exchange value of the dollar by:
    a. forcing other countries to get rid of dollars. 
    b. lowering demand for the dollar. 
    c. raising demand for the dollar. 
    d. none of the above 
 5). Increasing the money supply through monetary expansion causes inflation  and price increases which, in turn, causes _________________ in interest rates,  the exchange rate and demand for the dollar. 
    a. increases 
    b. decreases 
    c. triangular floats 
engage in    d. long positions 
Chapter  4  Forward Exchange and International Financial Investment
1）The following rates are available in the markets:
Current spot exchange rate : ＄0.500/SFr
Current 30-day forward exchange rate: ＄0.505/SFr
Annualized interest rate on 30-day dollar-denominated bonds:12%(1% for 30 days)
Annualized interest rate on 30-day Swiss franc-denominated bonds:6%(0.5% for 30 days)
A）Is the Swiss franc at a forward premium or discount?
B） Should a U.S.-based investor make a covered investment in Swiss franc-denominated 30-day bonds, rather than investing in 30-day dollar-denominated bonds? Explain.
C）Because of covered interest arbitrage, what pressures are placed on the various rates? If the only rate that actually changes is the forward exchange rate, to what value will it be driven?
Chapter  5 What Determines Exchange Rates?
1）According to PPP and the monetary approach, why did the nominal exchange rate value of the DM ( relative to the dollar) rise between the early 1970s and the late 1990s?Why did the nominal exchange rate value of the pound decline?
2）Will the law of one price apply better to gold or to Big Macs? Why?
Chapter  6  Government Policies toward the Foreign Exchange Market

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