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Suggested Answer for International Finance
Chap 2
2.
Disagree, at least as a general statement. One meaning of a current account surplus is that the country is exporting more goods and services than it is importing. One might easily judge that this is not good—the country is producing goods and services that are exported, but the country is not at the same time getting the imports of goods and services that would allow it do more consumption and domestic investment. In this way a current account deficit might be considered good—the extra imports allow the country to consume and invest domestically more than the value of its current production. Another meaning of a current account surplus is that the country is engaging in foreign financial investment—it is building up its claims on foreigners, and this adds to national wealth. This sounds good, but as noted above it comes at the cost of foregoing current domestic purchases of goods and services. A current account deficit is the country running down its claims on foreigners or increasing its indebtedness to foreigners. This sounds bad, but it comes with the benefit of higher levels of
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current domestic expenditure. Different countries at different times may weigh the balance of these costs and benefits differently, so that we cannot simply say that a current account surplus is better than a current account deficit.
4.
Disagree. If the country has a surplus (a positive value) for its official settlements balance, then the value for its official reserves balance must be a negative value of the same amount (so that the two add to zero). A negative value for this asset item means that funds are flowing out in order for the country to acquire more of these kinds of assets. Thus, the country is increasing its holdings of official reserve assets.
6.
Item e is a transaction in which foreign official holdings of U.S. assets increase. This is a positive (credit) item for official reserve assets and a negative (debit) item for private capital flows as the U.S. bank acquires pound bank deposits. The debit item contributes to a U.S. deficit in the official settlements balance (while the credit item is recorded \the line,\transactions involve debit and credit items both of which are included in the official settlements balance, so that they do not directly contribute to a deficit (or surplus) in the official settlements balance.
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8. a. Merchandise trade balance: $330 - 198 = $132 = $23
b. Change in official reserve assets (net) = - official settlements balance = -$23.
10. a. International investment position (billions): $30 + 20 + 15 - 40 - 25 = $0.
The country is neither an international creditor nor a debtor. Its holding of international assets equals its liabilities to foreigners.
b. A current account surplus permits the country to add to its net claims on
foreigners. For this reason the country's international investment position will become a positive value. The flow increase in net foreign assets results in the stock of net foreign assets becoming positive.
The country is increasing its net holdings of official reserve assets. Goods and services balance: $330 - 198 + 196 - 204 = $124 Current account balance: $330 - 198 + 196 - 204 + 3 - 8 = $119
Official settlements balance: $330 - 198 + 196 - 204 + 3 - 8 + 102 - 202 + 4
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普格尔国际金融课后答案
