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Unformatted text preview: Econ303: International Money and Finance Tutorial 1 1. Explain how each of the following transactions generate two entries a credit and a debit in the American balance of payment accounts, and describe how each entry can be classified: a. An American buys a share of German stock, paying by writing a check on an account with a Swiss bank. b. An American buys a share of German stock, paying by writing a check on an American bank. c. The Korean government carries out an official foreign exchange intervention in which it uses dollars held in an American bank to buy Korean currency from its citizens. d. A tourist from New York buys a meal at an expensive restaurant in Paris, France, paying with a traveller's check. e. A Californian winemaker contributes a case of cabernet sauvignon for a London's wine tasting. f. A US owned factory in Britain uses local earnings to buy additional machinery. 2. Which considerations might make the government concerned about a large current account deficit or surplus? Why might the government be concerned about its official settlement balance (i.e. its balance of payments) 3. Calculate the dollar rate of return on the following assets: a) A painting whose price rises from $200,000 to $250,000 in a year. b) A 10,000 deposit in London bank in a year when the interest rate on pounds is 10% and the $/ exchange rate moves from $1.5 per pound to $1.38 per pound. 4. Explain how the exchange rate between Australian dollar and euro will change in the following cases: a) The RBA increases the interest rate. b) The euro is believed to appreciate against all major currencies in the future. ...
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- Spring '10