Balance of Payments
Question # 00435631
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Updated on: 12/03/2016 06:37 PM Due on: 12/03/2016
a. Determine which account of the Balance of Payments is affected by each of the following transactions. (E.g. Current Account - Transfers)
i. A local firm ships US$80 million of merchandise to China
ii. National Commercial Bank, a local company, pays US$1 million in dividends to foreign shareholders
iii. A German company builds a manufacturing facility in your country.
iv. A local resident purchases a retirement condo in Florida for US$10 million.
v. You invest in the South Korean stock market by buying US$500 in stock.
b. Consider three countries Hungary, Mexico and the United States, which sell identical t-shirts. If the price of the t-shirt is 500 forint, 20 pesos and US$2. Calculate the purchasing power parity exchange rate between
i. Mexico and the US
ii. Hungary and the US
c. Suppose the current exchange rate between the Mexican peso and the US dollar is 12 peso = US$! and the exchange rate between the Hungarian forint and the US dollar is 215 forint = US$1. Based on the PPP calculations in part a, what do you expect to happen to the exchange rate between:
i.Mexico and the US
ii. Hungary and the US
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Solution: Balance of Payments all 5 answers