Chat with AIExam 23: International Transactions and Currency Values
Please describe and then discuss the major trends that have occurred in the following segments of the United States' balance-of-payments accounts in recent years.
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VerifiedMerchandise trade balance
Investments in overseas assets by U.S. residents
Investments in U.S. assets by foreign residents
Prior to the 1970s, the U.S. had a positive merchandise trade balance (exports>imports) due to substantial demand for U.S. agricultural products and machinery and equipment overseas. During the next two decades, due to inflation, oil imports and uncertainty over the value of the dollar, the U.S. experienced large merchandise trade deficits. With slowing inflation and a declining value of the dollar during
the early 1990s, U.S. exports of capital goods increased substantially. The result has generally been a declining trade deficit. However, U.S. trade deficits soon grew again and much more steeply than ever, right till the end of the century. By 2000, the U.S. merchandise trade balance deficit approached $400 billion on an annualized basis. These deficits appear to be caused by the size and leadership of the U.S., which has made the US$ the most sought-after currency in the world and the long-term strength of the U.S. economy, which has raised its demand for foreign goods & services.
Investment by U.S. residents abroad grew faster than foreign investments inside the U.S. during the early 1990s due to higher yields on stocks and bonds abroad and a domestic recession that made U.S. investments less attractive. Given that, over the past two decades, capital inflows into the U.S. have grown faster than U.S. investment abroad. Major factors boosting foreign investment in the U.S. include the desire to avoid American import restrictions and the political stability of the U.S. In 2000, U.S. citizens and private organizations invested more than $300 billion overseas, while foreign individuals and private institutions invested more than $750 billion in U.S. assets. The result was a net private financial inflow into the U.S. U.S. banks, hotels, energy companies and numerous other firms have all been acquisition targets for foreign investors.
A nation should acquire goods and services from those sources - foreign or domestic - which result in the lowest cost of its own resources. The foregoing is a statement of the Principle of _____
(32) VerifiedD
Suppose the pound-dollar exchange rate is 1.4000 and the yen-dollar exchange rate is 2.3000. What is the yen-pound exchange rate?
(36) Verified2.3/1.4 = ¥1.6429/£
What are the principal factors affecting the value of any particular foreign currency in the international exchange markets?
(35) Distinguish between the spot and forward markets for foreign currencies. Why is it necessary to have two markets rather than one?
(42) The United States can consume more than it producers, provided _____________, such as, by issuing
Government and private securities, to finance the consumption.
(42) Please explain the meaning of currency risk. How does currency risk affect exporters, importers and investors active in the international financial marketplace?
(35) Current Account - a component of the BOP; it includes the merchandise trade balance, service balance, income receipts and payments and unilateral current transfers.
(46) You are asked to calculate the forward exchange rate on Euros versus the U. S. dollar. You find out that the current dollar-Euro spot exchange rate is 0.8555 and that forward Euros scheduled for delivery in six months are selling at a 3 percent premium over the spot rate. What is the Euro-dollar forward exchange rate?
(32) What does the term sterilization refer to when talking about central bank intervention in the foreign currency markets?
(36) Please explain what is meant by the term balance of payments. Describe and list the principal components of a nation's balance-of -payments accounts.
(35) The international monetary system we have today has often been labeled the floating currency standard. Briefly explain what this term means in today's world. Can you anticipate any problems that might emerge with this standard for handling currency values and currency risk?
(44) In recent years central banks have intervened in the foreign exchange markets from time to time to support one foreign currency or another. Why might central bank intervention in the currency markets be a necessity _____ What impact are central bank operations most likely to have?
(34) What exactly are the advantages of a hedged position in one or more foreign currencies _____ What about the disadvantages (if any)?
(40) What is the purpose of currency swaps _____ How exactly do they work?
(40) In 1995 the Japanese yen was trading at 93.96 yen per dollar and by the summer of 1998 the yen/dollar exchange rate stood at 140.79, having risen in every year of the 1995-98 period. What economic and financial factors would likely have contributed the most to this sharp fall in the exchange value of the Japanese yen against the U. S. dollar _____ Using the demand and supply framework shown in Exhibit 25- 5 illustrate diagrammatically how the economic and financial factors you cited above would have lowered the international value of the yen vis-a-vis the American dollar. Should the Bank of Japan have intervened more aggressively during this period of erosion in the value of the yen _____ Why or why not?
(35) The currency exchange rate between euros (€) and pounds (£) is €/£ = 1.500 or € 1.50/£. What is the £/€?
(31) Why do you think the U.S. dollar is such an important currency within the international financial system _____ Is the dollar's importance around the globe a matter of history, resources, economic strength, cultural values or what?
(37) The prices of currency futures contracts traded on an exchange are normally quoted in terms of:
(39) Exactly what is meant by the phrase interest rate parity ____ How does it influence the flow of capital from one nation to another in international markets?
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