ECON 4131, International Finance, Spring 2002, Exam 1 :: UMN Minnesota Business Economics Finance

Midterm psyc nursing hometric testInternational FinanceApril 8, 2002 Answer all questions in examination booklets 1. (10 points) employ the BOP accounts guide on the last page of this exam to prognosticate where each of the following transactions should be recorded in the U.S. symmetricalness of payments (e.g. i3, e2, etc.). Bear in mind that each transaction should gene set up 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. foreshortens a Panamanian flagged vas 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 famine of $2 billion and a nonreserve capital account surplus of $900 meg in 1998. a) What was the balance of payments of Pecunia that year? What happened to the countrys net contradictory assets? b) Assume that the foreign central banks neither buy nor sell Pecunian assets. How did the Pecunian central banks foreign reserves modify in 1998? How would this formal 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 drop off the foreign balance of payments accounts? 3. (15 points) Derive (show your work) the following, and provide a brief storya) Uncovered interest rate parityb) Covered interest rate parity 4. (10 points) Define neutrality of capital and discuss why money is thought to be neutral in the long-run. 5. (10) Define Purchasing creator Parity and discuss the reasons why it might or might not hold. 6. (15 points) In our formal model of exchange rate determination chthonian sticky pricesa) What do the two curves represent?