A South American country has had a high rate of inflation. Recently, its exchange rate was 15 cruzados per dollar; that is, one dollar will buy 15 cruzados. It is likely that the country will continue to experience a 25% inflation rate and that the U.S. will continue at a 3% inflation rate. Assume that the exchange rate will vary the same as the inflation. In this situation, one dollar will buy how many cruzados 5 years from now?

Sale of Machinery to abroad is recorded in the current account.  True/False

Consider the following information related to the balance of payments. Make sure you understand that these are the dollar values of each item. You will need to think about whether they show up as a positive or a negative value in the balance of payments. Give all answers to two decimals. The trade balance is Item Exports of goods and services Foreign-owned financial assets in U.S. Foreign-owned real assets in U.S. Imports of goods and services Income payments Income receipts U.S.-owned financial assets abroad U.S.-owned real assets abroad million dollars. (in millions of dollars) 300.00 180.00 267.00 390.00 150.00 225.00 312.00 120.00

Suppose the current spot FX rate is S0 = NOK 0.9600/SEK. The consensus long-term forecast for Norwegian inflation is 4.25% per year, while the long-term forecast for Swedish inflation is 4.10% per year.   6. Which currency do you expect to appreciate? Which currency do you expect to depreciate? Why?   7. Estimate the spot FX rates which will obtain for the next five years. That is, estimate (in NOK/SEK) S1, S2, S3, S4, and S5. (How much confidence do you have in your forecast?)

1D