Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 35, Problem 2TY
To determine
The effects of the given actions on the U.S. balance of payments if the exchange rates were fixed.
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Look at each of the cases below from the point of view of the balance of payments for Canada. Determine the subcategory of the current account or financial account that each transaction would be classified in, and state whether it would enter as a credit or debit. a. A migrant worker in Ottawa sends $500 home to his village in Mexico. b. A Canadian charity donates five tons of rice to the Sudan to help with famine relief. c. A Canadian retired couple flies from Vancouver to Tokyo on Japan Airlines.
For each of the following transactions, show the two entries in the US balance of payments. For each entry, indicate whether it appears in CA (the current account) or KFA (the capital and financial account). Show if each entry is a debit (-) or a credit (+). For entries in KFA, choose the appropriate explanation from the following four possibilities: i) increase in US-owned assets abroad (increase in US claims on foreigners), ii) decrease in US-owned assets abroad (decrease in US claims on foreigners), iii) increase in foreign-owned assets in the US (increase in foreign claims on the US), iv) decrease in foreign-owned assets in the US (decrease in foreign claims on the US).
A. A US exporter sells a car to a German importer. The importer pays with a dollar denominated check drawn on a US bank account.
Describe how a change in exchange rate will affect a firm. Explain what happened to price and quantity. How can a firm profit from future shifts in the exchange rate? How do you predict future changes in the exchange rate?
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