国际货币与金融经济学课后习题答案集团文件版本号：（M928-T898-M248-WU2669-I2896-DQ586-M1988）Answers to End of Chapter QuestionsChapter 1Keeping Up With a Changing World-Trade Flows, Capital Flows,and the Balance Of Payments1. The balance on merchandise trade is the difference betweenexports of goods, 719 and the imports of goods, 1,145, for a deficit of 426. The balance on goods, services and incomeis 719 + 279 +284 – 1145 - 210 – 269, for a deficit of 342.Adding unilateral transfers to this gives a current accountdeficit of 391, [-342 + (-49) = -391]. (Note that incomereceipts are credits and income payments are debits.)2. Because the current account balance is a deficit of 391,then without a statistical discrepancy, the capital accountis a surplus of 391. In this problem, however, thestatistical discrepancy is recorded as a positive amount(credit) of 11. Hence, the sum of the debits in the balance of payments must exceed the credits by 11. So, the deficitof the current account must be greater than the surplus onthe capital account by 11. The capital account, therefore,is a surplus of 391 – 11 = 380.3. A balance-of-payments equilibrium is when the debits andcredits in the current account and the private capitalaccount sum to zero. In the problem above we do not knowthe private capital account balance. We cannot say,therefore, whether this country is experiencing a balance-of-payments surplus or deficit or if it is in equilibrium.4 The current account is a deficit of $541,830 and the privatecapital account balance is a surplus of $369,068. The U.S., therefore, has a balance of payments deficit.5 Positive aspects of being a net debtor include thepossibility of financing domestic investment that is notpossible through domestic savings; thereby allowing fordomestic capital stock growth which may allow job,productivity, and income growth. Negative aspects include the fact that foreign savings may be used to financedomestic consumption rather than domestic savings; whichwill compromise the growth suggested above.Positive aspects of being a net creditor include theownership of foreign assets which can represent an incomeflows to the crediting country. Further, the net creditor position also implies a net exporting position. A negative aspect of being a net creditor includes the fact thatforeign investment may substitute for domestic investment.6 A nation may desire to receive both portfolio and directinvestment due to the type of investment each represents.Portfolio investment is a financial investment while direct investment is dominated by the purchase of actual, real,productive assets. To the extent that a country can benefit by each type of investment, it will desire both types ofinvestment. Further, portfolio investment tends to beshort-run in nature, while FDI tends to be long-run innature. This is also addressed in much greater detail inChapter 7.7. Domestic Savings - Domestic Investment = Current Account BalanceDomestic Savings - Domestic Investment = Net Capital FlowsTherefore, Current Account Balance = Net Capital Flows8 Using the equations above, private savings of 5 percent ofincome, government savings of -1 percent, and investmentexpenditures of 10 percent would results in a currentaccount deficit of 6 percent of income and a capital account surplus (net capital inflows) of 6 percent of income. This could be corrected with a reduction in the governmentdeficit (to a surplus) and/or an increase in private savings.Chapter 2The Market for Foreign Exchange1. Because it costs fewer dollars to purchase a euro after theexchange rate change, the euro depreciated relative to thedollar. The rate of depreciation (in absolute value) was[(1.2168 – 1.2201)/1.2201]100 = 0.27 percent.2. Note that the rates provided are the foreign currency pricesof the U.S. dollar. Every value has been rounded to twodecimal places which may cause some differences in answers.3 The cross rate is 1.702/1.234 = 1.379 (€/￡), which issmaller in value than that observed in the London market.The arbitrageur would purchase ￡587,544 ($1,000,000/1.702) with the $1 million in the New York market. Next they would use the ￡587,544 in London to purchase €837,250(￡587,544*1.425). Finally, they would sell the €837,250 in the New York market for $1,033,167 (€837,250*1.234). Theprofit is #33,167.4. Total trade is (163,681 + 160,829 + 261,180 + 210, 590) =796,280. Trade with the Euro area is (163,681 + 261,180) = 424,861. Trade with Canada is (160,829 + 210,590) = 371,419.The weight assigned to the euro is 424,861/796,280 = 0.53 andthe weight assigned to the Canadian dollar is 0.47. (Recall the weights must sum to unity.)Because the base year is 2003, the 2003 EER is 100. Thevalue of the 2004 EER is:[(0.82/0.88)0.53 + (1.56/1.59)0.47]100 = (0.4939 + 0.4611)100 = 95.4964, or 95.5. This represents a 4.5 percentdepreciation of the U.S. dollar.5 The real effective exchange rate (REER) for 2003 is still 100.The real rates of exchange are, for 2003, 0.88(116.2/111.3) = .9187, 1.59(116.2/111.7) = 1.6541, and for 2004,0.82(119.0/114.4) = 0.8530, 1.56(119.0/115.6) = 1.6059. Thevalue of the 2004 REER is:[(0.8530/0.9187)0.53 + (1.6059/1.6541)0.47]100 = (0.4921 +0.4563)100 = 94.84, or 94.8. This represents a 5.2 percentdepreciation of the U.S. dollar in real terms6. This is a nominal appreciation of the euro relative to theU.S. dollar. The percent change is [(1.19 – 1.05)/1.05]100 = 13.3 percent.7. The January 200 real exchange rate is 1.05(107.5/112.7) =1.0016. The May 2004 real rate is 1.19(116.4/122.2) = 1.1335.8 In real terms the euro appreciated relative to the U.S.dollar. The rate of appreciation is [(1.1335 –1.0016)/1.0016]*100 = 13.17 percent.9 Absolute PPP suggests the May 2004 exchange rate should be122.2/116.4 = 1.0498. The actual exchange rate is 1.19.Hence, the euro is overvalued relative to the U.S. dollar by(1.19 – 1.0498)/1.0498]100 = 13.35 percent.10Relative PPP can be used to calculate a predicted value of the exchange rate as:= 1.05[SPPP(122.2/112.7)/(116.4/107.5)] = 1.0014.11. The actual exchange rate is 1.19. Hence, the euro isovervalued relative to the U.S. dollar by (1.19 –1.0014)/1.0014]100 = 18.83 percent.Chapter 3Exchange Rate Systems, Past to Present1. Ranking the various exchange rate arrangements byflexibility is not so clear cut. Nonetheless thearrangements described in this chapter are (from fixed toflexible): dollarization, currency board, commodity(standard) peg, dollar (standard) peg, currency basketpeg, crawling peg, managed float, flexible.2. The two primary functions of the International MonetaryFund are: surveillance of member nations' macroeconomicpolicies, and to provide liquidity to member nationsexperiencing payments imbalances.3. The value of the Canadian dollar relative to gold isCAN$69 (1.38$50) and the value of the British pound relative to goldis ￡33.33 ($50/1.50).4. The exchange rate between the Canadian dollar and theBritish pound is C$/￡2.07 (1.381.50).5.6. Because $1.05 is the currency content of the basket, asshown above, and $0.50 of that content is attributable tothe dollar, the weight assigned to the dollar is 0.50/1.05 = 0.476, or 47.6 percent. Because the weights must sum to unity, the weight assigned to the euro is 52.4 percent.7. The main difference between the two systems was that, inthe Smithsonian system, the dollar was not pegged to thevalue of gold. One reason that the system was short wasbecause there was little confidence that U.S. economicpolicy would be conducted in a manner conducive to asystem of pegged exchange rates.8. The principle responsibilities of a currency board are toissue domestic currency notes and peg the value of thedomestic currency. A currency board is not allowed topurchase domestic debt, act as a lender of last resort, or set reserve requirements.9. The Lourve accord established unofficial limits oncurrency value movements. In a sense, it was peg withbands for each of the main currencies (dollar, yen andmark).10. Differences in the fundamental determinants of currencyvalues between the pegging country and the other countryshould be considered. To this point of the text, the rate of inflation is a good example. Relative PPP can be usedto determine the rate of crawl.11. Under a currency board system, a nation still maintainsits domestic currency. Hence, policymakers can changeexchange rate policies and monetary policies if they so desire. When a nation dollarizes and disposes of itsdomestic currency it no longer has this option.Chapter 4The Forward Currency Market and International Financial Arbitrage1. Given that the exchange rate is expressed as dollars toeuros, we treat the dollar as the domestic currency. Note also that interest rates are quoted on an annual basis even though the maturity period is only one month. In this problem we divide the interest rates by 12 to put them on a one-month basis.a. The interest rate differential, therefore, is (1.75%/12 -3.25%/12) = -0.125%. The forward premium/discount,expressed as a percentage, is calculated as:((F-S)/S)100 = ((1.089 – 1.072)/1.072)100=1.5858%R – R* 450(F-S)/S -0.1251.5858 1.00 -1.00b. Transaction costs are shown in the figure above by the dashedlines that interest the horizontal axis at values of -1.00 and 1.00.c. The positive value indicates that the euro is selling at apremium. In addition, the interest rate differential favors the euro-denominated instrument. Hence, a saver shift funds to euro-denominated instruments.2. Using the provided information:(1.75/12) – (3.25/12) < [(1.089 - 1.072/1.072)]100-0.125% < 1.5858%.Graph 2, the forward market$/€loanable funds In graph 1, the demand for the euro rises as internationalsavers shift funds into euro-denominated instruments. In graph2, the supply of euros increases in the forward market.(Consider a U.S. saver that moves funds into a euro-denominatedinstrument. They would desire to sell the euro forward so theymay convert euro-denominated proceeds at the time of maturityinto their dollar equivalent.) Graph 3 illustrates a decreasein loanable funds in the United States as savers shift funds toeuro-denominated instruments. Graph 4 illustrates the increasein the supply of loanable funds that occurs when savers shiftfunds to the euro-denominated instrument.4. Because (1.03125) > (1.04250)(1.4575/1.5245) = 0.9967, anarbitrage opportunity exists in this example if one were toborrow the pound and lend the euro. Suppose you were toborrow one pound, the steps are then:a. Borrow ￡1, convert to €1.5245 on the spot market.b. Lend euros, yielding €1.5245(1.03125) = €1.5721.c. See euros forward, yielding €1.5721/1.4575 = ￡1.0787.d. Repay the pound loan at ￡1(1.04250) = ￡1.04250.e. The profit is ￡0.0362, or 3.62 percent.5. Because interest rates are quoted as annualized rates, weneed to divide each interest rate by 4 (12/3). The uncovered interest parity equation is:R -R* = (S e- S) /S+1a. Rewriting the equation for the expected future expected exchange rate yields:= [(R- R*) + 1]SS e+1b. Using the values given yields the expected future spot rate= [(0.0124/4 - 0.0366/4) + 1]S e+11.5245 = 1.5153.6. Given this information, we can calculate the forwardpremium/discount with the UIP condition:(F - S)/S = R - R*The interest differential is 1.75% - 3.25% = 1.5%. This is the expected forward premium on the euro. Hence, (F –1.08)/1.08 = 0.015 implies that F = 1.0962.7. We can adjust for the shorter maturity by dividing theinterest rates by 2 (12/6). Now the interest differential is0.75%, still a forward premium on the euro. The forward ratenow is (F – 1.08)/1.08 = 0.0075 implies that F = 1.0881.8. The U.S. real rate is 1.24% – 2.1% = -0.86% and the Canadianreal rate is 2.15% – 2.6% = -0.45%. Ignoring transactioncosts, because the real interest rates are not equal, realinterest parity does not hold.9. Uncovered interest parity is R -R* = (S e- S) /S + ρ.+1a. Using the same process as in question 5 above, theexpected future spot rate is:= [(R- R*) + 1]S,S e+1= [(0.075 - 0.035) + 1]S e+130.35 = 31.564.b. Using the same process as in question 5 above, theexpected future spot rate is:= [(R- R*) + 1 - ρ]S,S e+1= [(0.075 - 0.035) + 1 – 0.02]S e+130.35 = 30.957.10. Because the forward rate, 30.01, is less than the expectedfuture spot rate, 30.957, you should sell the koruna forward.For example, $1 would purcase k30.957, which you could sell forward yielding k30.957/30.01 = $1.0316.11. International financial instruments:a. Global Bond: long term instruments issued in the domestic currency.b. Eurobond: term is longer than one year and is issued in a foreign currency.c. Eurocurrency: keyword is that it is a deposit.d. Global equity: keyword is that it is a share.Chapter 7The International Financial Architecture and Emerging Economies 1. The difference between direct and indirect financing has todo with whether the borrower and lender seek each other out or whether an intermediary matches borrowers and lenders.Direct financing requires no intermediary to match savers and borrowers. An economy will benefit from having both direct and indirect financing because both are appropriate ways to save and invest under different circumstances. As discussed in the text, financial intermediaries absorb a fraction of each saver's dollar that is borrowed. Thus, the intermediary takes some of the funds that otherwise would have gone to a borrower. However, the financial intermediary provides animportant service by reducing information asymmetries,allowing savers to pool risk, and matching risk and return.Therefore, when an individual cannot research these issues on his/her own, the intermediary is necessary to help thefinancial markets operate. However, a strong bond market, in which borrowers and savers can directly interact, allows for informed parties to save the funds that otherwise would go to an intermediary. This, in turn, uses the savings moreefficiently.2. Portfolio flows are relatively short term in nature (have ashorter term to maturity), involve lower borrowing costs, and can generate near-term income. They also do not require a firm to give up control to a foreign investor. Consequently, they may help to improve capital allocation within an economy and help the economy's financial sector develop. These are all potential benefits of portfolio investments. By the same token, however, they are also relatively easy to reverse in direction, which is a potential disadvantage of portfolioinvestment.On the other hand, foreign direct investment (FDI) involve some degree of ownership and control of a foreign firm, are typically long term in nature, and help provide a stabilizinginfluence on a nation's economy. As such, FDI is typically more difficult to arrange.It is not advantageous to rely on either type of investment exclusively, in so far as each type accomplishes different goals for an economy. Both near-and long-term capital are important for an economy's growth.3. As either portfolio investment of FDI increase, the demand for the local currency rises (e.g., there is a shift from D 0 to D 1), which puts upward pressure on the value of thecurrency, from S 0 to S 1. If the central bank expects to holdthe value of the currency constant at S 0, it will have toincrease the quantity of the domestic currency supplied (e.g., accommodate the excess quantity demanded at the initial spot rate S 0) to maintain the peg. The opposite would hold forcapital outflows.Q s Q d4. Suppose that a multinational bank (MNB) headquartered in adeveloped economy enters a developing economy. The MNB has gained considerable expertise in working as a financialintermediary, and likely has achieved economies of scale in doing so. By entering a foreign market, it helps to allocate the savings more efficiently through its intermediationservices; which in turn will lead to additional economicdevelopment. Specifically, it should help to make sure that the best investment projects are funded. Moreover, thecompetition it introduces into the capital market helps to improve the quality of the indigenous financialintermediaries. This, in turn, should also add to financial stability.5. Savers and borrowers can also benefit from the regulation offinancial intermediaries when portfolio capital flowsdominate a country's capital inflows. It can be argued that regulation to limit short-term inflows can stabilize theeconomy and that these regulations can be gradually lifted as the economy becomes more stable (financial markets develop) and resilient to external shocks. These regulations doimpose costs in that they require resources to enforce, and may inhibit otherwise helpful capital inflows which may aideconomic development. However, these costs must beconsidered against the potential losses that may be incurred if the absence of capital controls would lead to morevolatile and capital markets (which may deter the inflow of foreign capital).6. Policymakers should undertake actions that attract bothportfolio capital flows and FDI flows. Actions that improve transparency in both the private a public sector reducesinformation asymmetries and their associate problems thereby making portfolio flows more stable, in other words, reducing the risk of massive capital outflows. Policymakers may also undertake actions that promote education, improve the taxstructure and tax collection, and improve the countriesinfrastructure. These actions may, in turn, attract FDI.7. In the following two examples it is assumed that thepolicymaker maintains a pegged-exchange rate regime and does not opt for a floating-rate regime. Hence, the policymaker may either intervene and maintain the peg or change the value of the peg. In both cases there is pressure for the domestic currency to appreciate vis a vis the foreign currency.a. If the exchange rate pressure is only temporary in nature,then the policymaker may intervene by accommodating theexcess quantity demanded, as explained in question 3 above.b. Because the exchange rate pressure is longer-term innature, the policymaker would be well advised to revaluethe domestic currency.8. The World Bank was initially established to help countriesrebuild after WWII and in the 1960s expanded to also makelong term loans to developing nations in order to help reduce poverty and improve living standards. Recently, some of the World Bank's activities have begun to overlap the IMF'sactivities to finance long-term structural adjustments and provide refinancing for some heavily indebted countries.Critics may argue that the tasks that are duplicated by the IMF and the World Bank create conflicting goals for the World Bank. Thus, the two organizations may each benefit byfocusing on different aims. For instance, the IMF may return to financing shorter-term objectives and leave the World Bank to worry about longer-term projects.Another conflicting line of reasoning involves donors'expectation that the World Bank maintain a revenue streamform its projects. This can be argues as unrealistic,however, in that the poorest countries are less likely toyield a payoff for the needed projects; and these areprecisely the countries that the World Bank is designed and intended to help. On the other hand, the less risky projects, which could provide a positive revenue stream are likely to attract private capital.9. The first cause of a crisis could be an imbalance in theeconomy. In other words, an incongruity in economicfundamentals could cause a crisis. Possible indicatorsinclude theoretical divergences between various economicvariables such as the exchange rate and interest rates,income, and money supply. In terms of evaluation, iffundamental economic variables seem to be out of line, there may be an impending crisis.A second cause is that of self-fulfilling expectations andcontagion effects. In this case, mere expectations of apotential inability to maintain a specified exchange rate ora slight incongruity between economic conditions and themarket exchange rate may cause a cascade of speculation that leads to a crisis. Since this is based on perception, it is difficult to find an indicator. One possible indicator would be trading volumes of currency for countries that may be atrisk from the viewpoint of economic fundamentals. If trading volumes grew quickly, a crisis may be on the horizon.Finally, the structural moral hazard problem may indicate a crisis. In this case, a credit rating bureau, such asMoody's may provide the data needed to indicate a potential crisis. The quality of the credit rating would be relatively easily interpreted to indicate a potential crisis.10. It can be argued that such below market interest rateloans are critical for a developing nation's economy in order for the economy to grow unburdened by high interest payments when it is trying to funnel profits back into the economy and sustain growth. Conversely, providing these non-market rate loans can also be argued to distort the market for loanable funds and attract inefficient investment. Students'perspectives will vary as to which argument is the best.Chapter 8Traditional Approaches to Exchange-Rate and Balance-Of-Payments Determination1. Using the formula provided in the question, the elasticityof foreign exchange demand is, in absolute valueand the elasticity of foreign exchange supply is2. A 1 percent depreciation of the Canadian dollar results in a0.52 percent decline in imports demanded and a rise of 0.58percent in exports supplied.3. In absolute value, the smallest elasticity measure (mostinelastic) is Germany’s elasticity of import demand fromthe U.K. In absolute value, the largest elasticity measure (most elastic) is the United States’ elasticity of demand for imports from Germany.4. Table 8-1 provides measures of the price elasticity ofimport demand. If the U.S. dollar depreciates relative to the Japanese yen, U.S. exports become relatively lessexpensive to Japanese consumers and Japanese exports become relatively more expensive to U.S. consumers.a. T he U.S. quantity of imports demanded from Japan falls by1.13 percent.b. J apan’s qua ntity of imports demanded from the U.S. rises by 0.72 percent.c. B ecause U.S. exports rise and imports decline, the trade balance should improve.5. The trade balance may not improve in the short-run becauseof pass-through and J-curve effects. Over a longer timehorizon, import demand is relative more elastic and thetrade balance should improve.6. If the Canadian dollar depreciates relative to the U.S.dollar, then the quantity of hockey pucks demanded declines.Hence, Slovakian manufacturers would have to absorb all ofthe exchange rate change in their profit margins and theprice of hockey pucks would have to decline by 5 percent for the quantity demanded to remain unchanged.7. Using the values given in the problem:a.real income, y, equals c + i + g + x = $23,500, absorption,a, equals c + i + g + im = $24,000.b. N et exports, x - im, equals -$500. Therefore, there is atrade deficit of $500.8. Net exports now equal $550 - $950 = $400. The devaluationdid improve the external balance.9. The advertising campaign would induce consumers to increaseexpenditures on domestic output and decrease expenditures on foreign output. Domestic absorption will rise and, ifexpenditures on imports decrease, the trade balance improves.10. As the U.S. economy expands, we would expect real income andreal absorption to increase. On the one hand, if realincome increases more than real absorption, net exports willrise. This would lead to an appreciation of the U.S. dollar.If, on the other hand, real absorption rises faster thanreal income, net exports fall. This would lead to adepreciation of the U.S. dollar.Chapter 9Monetary and Portfolio Approaches to Exchange-Rate and Balance-of-Payments Determination1. Using the formula provided on page 222, m(DC + FER) = kSP*y.a. The money stock is 2($1,000 + $80) = $2,160 million.b. The level of real income is: [2($1,000 +$80)]/[(0.20)(1.2)(2)] = $4,500 million.2 An open market purchase of securities in the amount of $10 million:a. A fixed exchange rate regime requires a decrease inforeign reserves in an equal amount. Hence, this actionresults in a balance of payments deficit in the amount of$10 million.b. A flexible exchange rate regime results in a new spotexchange rate of 2.019, which is a depreciation of thedomestic currency. This problem is solved by using thevalue for real income derived in 5 b above: [(2($1,010 +80)]/[(0.20)(1.2)($4,500)] = 2.019.3. The wealth identity is given on page 229 as W≡ M + B+ SB*.An open market sale of securities would reduce bank reserves, increasing the domestic interest rate. Individuals wouldshift from foreign bonds to domestic bonds, leading to anappreciation of the domestic currency. Under a fixedexchange rate, the open market sale would result in animprovement of the domestic nation’s balance of payments.(The elasticity diagrams in Chapter 8 are useful in answering this question.)4. This answer is an illustration of problem 3 under flexibleexchange rates. The open market sale would cause an increase in the demand for the domestic currency and the domesticcurrency would appreciate as a result.5. The wealth identity is given on page 315 as W≡ M + B SB*.From the foreign nation it is W ≡ M* + B* + (1/S)B. An open market sale of securities by the foreign central bank would reduce foreign bank reserves, increasing the foreign interest rate relative to the domestic interest rate. Individualswould shift from domestic bonds to foreign bonds, leading to an depreciation of the domestic currency.Chapter11Economic Policy with Fixed Exchange Rates(Chose the right answers from the following 10 answers by yourself . SuGuangjin）1. Achieving a balance-of-payments surplus requires that thesum of the capital account balance and current accountbalance is positive, which requires a higher interest rate to attract greater capital inflows and lower real income todampen import spending. Consequently, the BP schedule would lie above and to the left of the position it otherwise would have occupied if the external-balance objective were toensure only a balance-of- payments equilibrium. Undoubtedly, if the central bank felt pressure to sterilize under thelatter objective, the pressure to do so would be greater if it seeks to attain a balance-of-payments surplus, whichwould require the central bank to steadily acquire foreign-exchange reserves. In the absence of sterilization, thenation's money stock would steadily decline.2. In this situation, variations in the domestic interest raterelative to interest rates in other nations would have not effect on the nation's capital account balance and itsbalance of payments. Its BP schedule, therefore, would be vertical. An expansionary fiscal policy, given a fixedexchange rate (as assumed in this chapter), would cause the。
