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a.
To describe: The affect on US balance of payments, if the summer is spent travelling in Europe supposing that exchange rate remains fixed.
b.
To describe: The affect on the US balance of payments if a $20 birthday present is received from Canada from a relative supposing exchange rates are fixed.
c
To describe: The affect on the US balance of payments, if a new Honda is purchased from Japan supposing exchange rates remains fixed.
d.
To describe: The affect on US balance of payments, if a new Honda is purchased from Ohio, supposing exchange rates remains fixed.
e
To describe: The affect on US balance of payments, if stock is sold in Tokyo stock exchange supposing exchange rates remains fixed.
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Chapter 19 Solutions
MACROECONOMICS (LOOSELEAF)-PACKAGE
- Look at each of the cases below from the point of view of the balance of payments for Canada. Determine the subcategory of the current account or financial account that each transaction would be classified in, and state whether it would enter as a credit or debit. a. A migrant worker in Ottawa sends $500 home to his village in Mexico. b. A Canadian charity donates five tons of rice to the Sudan to help with famine relief. c. A Canadian retired couple flies from Vancouver to Tokyo on Japan Airlines.arrow_forwardEach of the transactions indicated in Q.3.1.1 to Q.3.1.5 must be entered into South Africa’s Balance of Payments. Identify which main account and which sub- account on the balance of payments is applicable for each transaction. Q.3.1.1 Mr Mabane, a South African citizen, purchases the shares of a public (2) company listed on the London Stock Exchange.Q.3.1.2 The earnings of a South African doctor working in a hospital in Uganda. (2) Q.3.1.3 Dutch tourists visit Cape Town and stay in the Vineyard Hotel in Newlands.Q.3.1.4 South African citizens raise funds and send a donation to Somalian refugees in Kenya.Q.3.1.5 A Chinese company purchases and operates a factory in Gauteng.(2) (2) (2arrow_forwardGM produces and sells a compact car for $26,000. Volkswagen produces and sells a compact car for 19,000 euros. If the exchange rate is 1 dollar for 0.72 euros, which car would be the least expensive choice? Show your work.arrow_forward
- why, according to some economists, should canada adopt the U.S dollar as its currency?arrow_forwardFor each of the following transactions, show the two entries in the US balance of payments. For each entry, indicate whether it appears in CA (the current account) or KFA (the capital and financial account). Show if each entry is a debit (-) or a credit (+). For entries in KFA, choose the appropriate explanation from the following four possibilities: i) increase in US-owned assets abroad (increase in US claims on foreigners), ii) decrease in US-owned assets abroad (decrease in US claims on foreigners), iii) increase in foreign-owned assets in the US (increase in foreign claims on the US), iv) decrease in foreign-owned assets in the US (decrease in foreign claims on the US). A. A US exporter sells a car to a German importer. The importer pays with a dollar denominated check drawn on a US bank account.arrow_forwardThe gold standard caused the fluctuations of exchange rates between countries True or falsearrow_forward
- spot and forward exchange rates to discussarrow_forwardIn the picture below is the table to answer this question. The highlighted one is my guess which is wrong. Based on the Exchange rates above, How might international travel be affected by the exchange rates above? A)More Americans can afford to travel to Canada.B)More Canadians will be able to afford travel in the US. C)More Americans can afford to travel to Great Britain.D)Mexico is an expensive place for Americans to travel.arrow_forwardProblem 8.8 Suppose that you are a U.S.-based importer of goods from the United Kingdom. You expect the value of the pound to increase against the U.S. dollar over the next 30 days. You will be making payment on a shipment of imported goods in 30 days and want to hedge your currency exposure. The U.S. risk-free rate is 5.0 percent, and the U.K. risk-free rate is 4.0 percent. These rates are expected to remain unchanged over the next month. The current spot rate is $3.40. a. Whether you should use a long or short forward contract to hedge the currency risk. Long position in forward contract O Short position in forward contract b. Calculate the no-arbitrage price at which you could enter into a forward contract that expires in 30 days. (Do not round intermediate calculations. Round your answer to 4 decimal places.) No-arbitrage price c. Move forward 10 days. The spot rate is $3.43. Interest rates are unchanged. Calculate the value of your forward position. (Do not round intermediate…arrow_forward
- Describe how a change in exchange rate will affect a firm. Explain what happened to price and quantity. How can a firm profit from future shifts in the exchange rate? How do you predict future changes in the exchange rate?arrow_forwardDetermine which account of the Balance-of-Payments is affected by each of the following transactions and the impact on the market for foreign exchange. (a) Your older brother who lives in London sends money to pay your tuition. (b) Some of the tuition money your older brother sends is used to buy a laptop from Amazon.com. (c) Carnival Cruise Lines pays for half of the cost of building the new cruise pier in your country. (d) Celine Dion performs at the Jamaica Jazz & Blues Festival. (e) In order to diversify its asset holdings a local asset management firm, buys shares of Ford Motor Company on the New York Stock Exchange. (f) Your country exports agriculture produce to the United States.arrow_forwardIn 1992, 18.6 million Canadians visited the United States, but only 11.8 million U.S. residents visited Canada. By 2002, roles had been reversed: more U.S. residents visited Canada than vice versa. Why did the tourism reverse direction? Canada didn’t get any warmer from 1992 to 2002 – but it did get cheaper. The reason is a large change in the exchange rate: in 1992 Canadian dollar was worth $0.80, but by 2002 it had fallen in the value by 20% to about $0.65. This means that Canadian goods and services, particularly hotel rooms and meals, were about 20% cheaper for Americans in 2002 compared to 1992. American vacations had become 20% more expensive for Canadians. Canadians responded by vacationing in their own country or in other parts of the world. Foreign travel is an example of a good that has a high price elasticity of demand: elasticity=4.1. One reason is that foreign travel is a luxury good for most people – you may regret not going to Paris this year, but you can live…arrow_forward
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