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Handout 4 Key

# Handout 4 Key - Econ 3140 Fall 2009 Handout#4 Answer Key...

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Econ 3140 Fall 2009 Handout #4 Answer Key 1. (a) NFP = 75 ° 15 = ° 40 (b) CA = (exports - imports) + NFP = (100 + 60) ° (130 ° 50) + (75 ° 115) = ° 60 (c) KFA = increase in foreign assets in home country - increase in home country assets abroad = 190 ° 130 = 60 Note: Since balance of payments must be equal to zero (e.g. BP = 0 ), and BP = CA + KFA , since from b. CA = ° 60 , then in order BP = 0 to hold, KFA = 60 . (d) trade balance = exports - imports = (100 + 60) ° (130 + 50) = ° 60 2. Given the exchange rate 2 MXP=USDs (a) U.S. merchandise trade balance and current account rise \$2 million, capital and °nancial account declines by \$2 million; Mexican merchandise trade balance and current account decline by 4 million pesos, capital and °nancial account rises by 4 million pesos. (b) U.S. merchandise trade balance and current account decline by \$200 ; 000 , capital and °nancial account rises by \$200 ; 000 ; Mexican merchandise trade balance and current account rise by 400 ; 000 pesos, capital and °nancial account declines by 400 ; 000 pesos.

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