The U.S. has imported more than it has exported every year for the last couple of decades. The persistent American trade deficits have been possible because the US has had a persistent surplus in the capital account. True False

The U.S. has imported more than it has exported every year for the last couple of decades. The persistent American trade deficits have been possible because the US has had a persistent surplus in the capital account. True False

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter12: Managing Economic Exposure And Translation Exposure

Section: Chapter Questions

Problem 2BIC

See similar textbooks

Related questions

Q: A country’s current account position moves from a surplus to a deficit. What will be the result?…

A: Current Account Current Account means recording a nation’s transactions with the rest of the world.…

Q: There was a noticeable jump in the annual Chinese foreign direct investment (FDI) in Latin America…

A: Here discuss about the details of the investment from the People Republic of China which are enhance…

Q: Those who say the growing current account deficit in the United States is not a significant problem…

A: A current account deficit means that increasing capital account surplus, which means that the…

Q: For some months now, the central bank has reduced the attention it pays to the levels ofinterest…

A: Money supply-Central banks like Fed, Bank of England etc., can affect the quantity of money in…

Q: A country running a large current account deficit tends to have Question 18 options:…

A: A country running a large current account deficit tends to have a large surplus in its financial…

Q: Approximately 70% of Coca Cola's total revenue (sales) is outside the United States. To protect its…

A: Forward and Futures are derivatives contracts In order to hedge the risk from foreign exchange, the…

Q: If US national income declined while it remained stable in Japan, then US trade deficit with Japan…

A: A trade imbalance generally develops over the period of time when a country which generally spends…

Q: Recently the US Dollar has been gaining strength against the EURO. This is good news for US…

A: Currencies of many nations float freely against each other. This means that their values will…

Q: A current account deficit implies that* more goods and services are exported than are imported.…

A: Current account of a company deals with the trade in goods, trade in services, investment incomes…

Q: country's economic well-being enhanced through free international trade in goods and Services,…

Q: the 1990s, Russia was attempting to import more goods but had little to offer other countries in…

A: In 1990 Russia was more importing than exporting so there was tremendous pressure on Ruble currency.

Q: In order to reduce its current-account deficit, the United States would NOT do which of the…

A: The difference between the goods and services imported and exported is measured by current account…

Q: SinTell has USD $24 million in excess cash that it has invested in China at an annual interest rate…

A: An exchange rate is the rate at which the currency of home country can be exchanged with the single…

Q: Towards the end of 2009 the pound fell to a six month low of 1.0628 Euros. Figures released by the…

A: The possible effects on the UK economy of the fall in the value of currency are as follows: When…

Q: Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso appreciates…

A: Here, Mexico is a major export market for US based company and Mexican peso appreciates that means…

Q: the 1990s, Russia was attempting to import more goods but had little to offer other countries in…

A: in that Russia was facing financial crisis type of situation where there was no demand for Russian…

Q: Value Chain; Currency Fluctuations In 2011–2013, Brazil’s economy was flourishing in manydimensions,…

Q: If the United States imports more goods from abroad than it exports, thenforeigners will tend to…

Q: All would indicate that hyperinflation exists, except: a. The general population regards monetary…

A: Hyperinflation is refers to a situation where the prices, interest and wages linked to a price…

Q: Assume the United States is an importer of televisions and there are no trade restrictions.US…

A: a) When the technological advancement in production reduces the world price of televisions, the…

Q: Other things being constant, if the U.S. real rate of interest exceeds that of its trading partners,…

A: The term real interest rate refers to the interest rate that has been adjusted for the effects of…

Q: Suppose Lufthansa buys 10 Boeing 747s for $150 million in 1991, financed by a five-year loan from…

A: The question is based on the concept of Forex transactions.

Q: Suppose that during a certain week the Fed announces a new monetary growth policy, Congress…

A: In the said question, there are three factors that affect the market assessment of Ford’s new model…

Q: According to the flow of balance of payment (BOP) approach to exchange rate determination, there are…

A: 1.a. When a devoloping country runs persistent BOP deficits for a couple of years, then it may face…

Q: f the U.S. dollar has fallen in comparison with foreign currencies, which of the following…

A: When the US Dollar rises in comparison with other currencies, it means that the US dollar has…

Q: America has run a trade deficit with UK for several years. To eliminate the deficit, the USD must…

A: The trade deficit represents that the import of the company exceeds the export of the country. If…

Q: China has a fixed rate regime. They keep their currency in terms of trade, fixed against the US…

A: Economy refers to the state or country in which the production of goods or services is to be done.…

Q: If China inflation suddenly becomes much higher than Philippines inflation, the Philippines demand…

A: Decrease; increase; upward.

Q: Raton Co. is a U.S. company that has net inflows of 100 million Swiss francs and net outflows of 100…

A: Computation of net cash inflows or cash outflows of Raton co. in US$: Raton Co. has a Net inflow:…

Q: There is an ongoing debate between US and China regarding weather the Chinese Yuan's value should be…

A: The share of China in US export is 7%, while in import it is 20%. Moreover, the lower level of the…

Q: If the income level in Mexico increases exponentially with stagnant growth in the U.S. income level…

A: When the income level country increases , the purchasing power of the country rises, this leads to…

Q: Explain the effect a drop in value of the U.S. dollar in relation to other currencies on the foreign…

A: The question is based on the concept relative currency exchange rate, an exchange rate is define as…

Q: Variation in the price of non-agricultural commodities is determined over time by demand-supply…

A: Derivative contracts are arrangement to reduce risk , the value of such contract depend on…

Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

Question

True

False

Definition Definition Situation in which a country spends more on imports than it makes through exports. When a trade deficit exists, net exports will be negative. Trade Deficit = (Imports) - (Exports)

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1 Introduction

VIEW

Step 2 Explanation

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

In the 1990s, Russia was attempting to import more goods but had little to offer other countries in terms of potential exports. In addition, Russia’s inflation rate was high. Explain the type of pressure that these factors placed on the ruble (Russian currency).
In the 1990s, Russia was attempting to import more goods but had little to offer other countries in terms of potential exports. In addition, Russia’s inflation rate was high. Explain the type of pressure that these factors placed on the Russian currency.
Those who say the growing current account deficit in the United States is not a significant problem make the argument that: 1.the current account deficit may hurt exporters, but American consumers gain as a result of lower relative prices. 2.the current account deficit is offset by an equally large capital account deficit, which ultimately leads to appreciation of the U.S. dollar. 3.the large current account deficit will ultimately lead to a current account surplus. 4.the increased investment in the United States as a result of the current account deficit will ultimately lead to increases in wealth and economic growth in the United States.
A current account deficit implies that* more goods and services are exported than are imported. the country borrowed from abroad more than it loaned and/or sold off some of its assets. the country is going bankrupt. the value of the dollar will rise. there is excessive consumption of foreign financial assets.
America has run a trade deficit with UK for several years. To eliminate the deficit, the USD must _______ against the British pound. a . compete b . strengthen c . weaken d . None of the answers is correct
There was a noticeable jump in the annual Chinese foreign directinvestment (FDI) in Latin America and the Caribbean (LAC) in and sincethe year 2010. While the annual Chinese FDI was around $5 billion before2010, it has gone up to $72.5 billion in the last seven years. In the year 2017,China was the largest investor in the LAC in terms of mergers andacquisitions deals of around $18 billion dollars. Between 2005 – 2017,Brazil, Peru, Argentina, Ecuador and Venezuela were top five LACdestinations for the Chinese FDI. Some of the largest acquisitions includeRepsol in Brazil (Oil industry), Las Bambas Mine in Peru (Mining industry),Petrogal Brasil in Brazil (Oil industry), Bridas in Argentia (Oil industry),etc. Within the Caribbean, the Alpart Alumina Refinery in Jamaica was soldfor US$299 million to the Jiuquan Iron and Steel Company (JISCo).Trinidad & Tobago, along with other Caribbean nations have signed up forthe famous “Belt and Road Initiative” of the People’s Republic of…
If the United States imports more goods from abroad than it exports, thenforeigners will tend to have a surplus of U.S. dollars. What will this do tothe value of the dollar with respect to foreign currencies? What is the corresponding effect on foreign investments in the United States?
Why did the value of the Indian rupee decline against that of the US dollar after the US Fed had announced that it would begin to wind down its economic stimulus program?A. Increase in US interest rateB. India's dependence on US capitalC. US's money supply expansionD. India's restriction on foreign capital
Finance If the U.S. dollar appreciates relative to the MXN (Mexican peso) over time, the dollar cost to a U.S. firm that buys products produced in Mexico and pays in MXN will _____ _____________ over time. (Answer either be rising or be falling)
You are the CFO of a US firm whose wholly owned subsidiary in Mexico manufactures component parts for your US assembly operations. The subsidiary has been financed by bank borrowings in the United States. One of your analysts told you that the Mexican peso is expected to depreciate by 30% against the dollar on the foreign exchange markets over the next year. What actions, if any, should you take?
The Japanese yen increases in value relative to the dollar, moving from 120 yento 110 yen to each U.S. dollar. From the perspective of a U.S. firm that produces in the UnitedStates and exports its product to sell in Japan:a. This is bad news.b. It doesn’t matter.c. This is good news
If the income level in Mexico increases exponentially with stagnant growth in the U.S. income level would most likely lead to (assuming no change in interest rates or other factors) a ____ in Mexican demand for U.S. goods, and the Mexican peso should ____. A. decrease; depreciate B. increase; depreciate C. increase; appreciate D. decrease; appreciate