PRIN MACROECON LL+CNCT+SMARTBOOK
6th Edition
ISBN: 9781260580792
Author: Frank
Publisher: MCG CUSTOM
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Question
Chapter 15, Problem 15.5CC
To determine
Graphically explain the effect of an increase in real interest rates abroad on net capital inflow.
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Because of the relationship between net capital outflow and net exports, the level of net capital outflow at the equilibrium real interest rate implies that the economy is experiencing (Balanced trade/ a trade deficit/ a trade surplus)
Now, suppose the government is experiencing a budget deficit. This means that ( National saving will increase/ national saving will decrease/ Domestic investment will increase / domestic investment will decrease) which leads to ( an increase in the supply of / a decrease in the supply of / an increase in the demand for/ a decrease in the demand for) loanable funds.
After the budget deficit occurs, suppose the new equilibrium real interest rate is 6%. The following graph shows the demand curve in the foreign-currency exchange market.
Use the green line (triangle symbol) to show the supply curve in this market before the budget deficit. Then use the purple line (diamond symbol) to show the supply curve after the budget deficit.
Summarize the…
Kindly answer this question as soon as you can
For each of the following, specify whether the foreign direct investment is horizontal or
vertical; in addition, describe whether that investment represents an FDI inflow or outflow from
the countries that are mentioned.
a. McDonald’s (a U.S. multinational) opens up and operates new restaurants in Europe.
b. Total (a French oil multinational) buys ownership and exploration rights to oil fields in
Cameroon.
c. Volkswagen (a German multinational auto producer) opens some new dealerships in the
United States. (Note that, at this time, Volkswagen does not produce any cars in the United
States.)
d. Nestlé (a Swiss multinational producer of foods and drinks) builds a new production factory in
Bulgaria to produce Kit Kat chocolate bars. (Kit Kat bars are produced by Nestlé in 17 countries
around the world.)
Display graphically changes in the equilibrium interest rate if the economy is experiencing rapid growth in the anticipated productivity of capital investment relative to trading partner countries
Chapter 15 Solutions
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- Suppose the 12-month forward price of the yen in terms of dollars is .02 dollars per yen. Suppose the spot price of of the yen in terms of dollars is .019. Next, suppose that currently the annual interest rate on dollar deposits is 2%, while the interest rate on a comparable yen deposit is 1%. There are no transactions costs. Is there an arbitrage opportunity here? If so, explain exactly how you would take advantage of this situation to make riskless profits.arrow_forwardComplete the following table by indicating the effect each of the following transactions has on U.S. net capital outflow and whether it involves direct investment or portfolio investment. Transaction A Vanguard mutual fund sells its Toyota stock to a German investor. (Note: Assume the German investor pays in U.S. dollars.) Samsung sells stock to the General Electric pension fund. Sony expands its corporate office in New York. An American cellular phone company establishes an office in the Czech Republic. Effect on Net Capital Outflow Decrease Increase Decrease Increase Type of Investment Involved Portfolio investment Portfolio investment Direct investment Direct investmentarrow_forwardExplain the relationship among saving, investment,and net capital outflow.arrow_forward
- Identify what you consider to be the political risks facing companies thinking of investing in USA considering GBP/USD trend and how a company would go about trying to mitigate these risks.arrow_forwardGiven the following data: E₁ =¥100 = $1.00 Et+1 = ¥100 = $1.00 (one year later} iuaoan = 15% annually ¡u.s. = 10% annually Calculate the future value of a $1,000 investment. If the $1000 is invested in the U.S., the future value is $ (Round your response to two decimal places.)arrow_forwardclosing case Megahertz Communications worried that Megahertz would not get paid on time, or at all, or that currency fluctuations would reduce the value of payments to Megahertz. Even when Megahertz had a letter of credit from the customer's bank and export insurance documentation, many lenders still saw the risks as too great and declined to lend bridging funds to Megahertz. As a partial solution, Megahertz turned to lending companies that specialize in financing international trade, but many of these companies charged interest rates significantly greater than those charged by banks, thereby squeezing Megahertz's profit margins. Coles hoped these financing problems were temporary. Once Megahertz established a more sustained cash flow from its international operations, and once banks better appreciated the ability of Coles and his team to secure payment from foreign customers, he hoped that they would become more amenable to lending capital to Megahertz at rates that would help to…arrow_forward
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