1)"A balance of trade deficit must always be offset by net capital inflows from abroad?”
2) “Suppose a Japanese firm buys a 1 year treasury bill with a face value of $10,000 today for
$9400. If the value of the dollar declined from 90 to 80 yen during the year, what rate of return
does the Japanese firm earn on its investment?”
5a) What is the "purchasing power parity" theory of exchange rates? If the price of a
representative bundle of tradable goods is currently $5000 in the U.S. and 550000 yen in Japan,
is the $ undervalued or overvalued when the exchange rate is 90 yen per $?