Project #22998 - International finance and macroeconomics problem set

Problem set for international finance & macroeconomics.

Only 4 problems and they are all short answers.

I need these to be 100% correct.

thank you!

 

1. a. Assume the US imports 100 chocolates from Switzerland and exports 100 beefsteaks to Switzerland. The price of both chocolates and beefsteaks is $10, and the exchange rate is $1/SFR (SFR=Swiss Franc). The import price elasticity is 1 and the export price elasticity is 2. Compute the US trade balance in dollars before and after a 5% depreciation of the dollar. You may assume that the prices are set in the exporter’s currency: $10 for beefsteaks and 10 SFR for chocolates. b. How does your answer to the previous question change when exporters set prices in the importer’s currency (10 SFR for beefsteaks and $10 for chocolates)? 2. Assume a two-country model with tradable and non-tradable goods. In both countries it takes ten units of labor to produce each good and in both countries 60% of income is spent on non-tradable goods. The price of tradable goods is the same in both countries (when measured in the same currency). Now assume that due to technological progress in the foreign country it takes only 9 units of labor to produce the tradable goods there (and still 10 units of labor to produce the non-tradable good). From the perspective of the domestic country, how much will the real exchange rate appreciate or depreciate? 3. Assume that the dollar interest rate in the US is 10% and the Euro interest rate in France is 5%. These are rates on one-year bonds. a. Assume that the current spot exchange rate is $1/Euro. What is the one-year forward exchange rate if there are no capital controls? Explain. b. Assume that both the spot and forward rate are $1/Euro. Assume that a deviation from covered interest parity is due to US capital controls. Assume that only the US imposes capital controls. Are these controls on US capital inflows or US capital outflows? Explain. c. Assume, as in b, that the spot and forward rates are $1/Euro and that only the US imposes capital controls. What are the dollar and Euro interest rates in the Eurocurrency market? [hints: (i) onshore and offshore rates are equal when there are no capital controls, (ii) there is always interest rate arbitrage within the Eurocurrency market (no capital controls)] 4. Miscellaneous Questions. a. How do we know that exchange rates are to a large extent driven by private information? b. What is the global saving glut explanation for the U.S. current account deficit? c. Assume that a US importer needs to make a payment of $1 mln. Euros in 3 months. How can the importer hedge the exchange rate risk through the forward market? How can the importer hedge the exchange rate risk through the option market? d. Give two reasons why consumer prices are less sensitive to exchange rates than import prices. Be clear about your answer.

 

Subject Science
Due By (Pacific Time) 02/17/2014 11:59 pm
Report DMCA
TutorRating
pallavi

Chat Now!

out of 1971 reviews
More..
amosmm

Chat Now!

out of 766 reviews
More..
PhyzKyd

Chat Now!

out of 1164 reviews
More..
rajdeep77

Chat Now!

out of 721 reviews
More..
sctys

Chat Now!

out of 1600 reviews
More..
sharadgreen

Chat Now!

out of 770 reviews
More..
topnotcher

Chat Now!

out of 766 reviews
More..
XXXIAO

Chat Now!

out of 680 reviews
More..
All Rights Reserved. Copyright by AceMyHW.com - Copyright Policy