midterm1 - Economics/Finance 431/531 Ruxandra Prodan Test 1...

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Economics/Finance 431/531 International Finance Ruxandra Prodan Fall 2005 Test 1 1.(25 points) How are the following transactions entered into the US balance of payments? Please describe each transaction in detail. a) An American tourist in Greece spends $300 for hotels and meals paying with his US account visa card b) An American buys a share of German stock, paying the seller with a check on a German bank. c) The US government sends a gift in value of $500.000 to Uruguay d) A German citizen buys $1000 of American stocks and pays by drawing on his dollar deposits in a US bank. e) The US government carries out an official foreign exchange intervention in which it uses euros held in a German bank to buy dollars from its citizens.
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2 . (60 points) . Here is our short run model: R $ = R yen + (E e $/yen –E $/yen ) / E $/yen M s / P us = L(R $ ,Y us ) Consider a case where the interest rate on a one-year dollar denominated bond is 5% and the expected value of the dollar one year from now is 0.012 $/yen.
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midterm1 - Economics/Finance 431/531 Ruxandra Prodan Test 1...

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