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Balance of Payments

Question # 00435631
Subject: Economics
Topic: Macroeconomics
Due on: 12/03/2016
Posted On: 12/03/2016 06:37 PM

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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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Preview: of the production function; An investment of more capital to a frim increases the production function since more resources can be acquired. The production function curve shifts to the right. ii. A new highway linking two major towns is constructed.Construction of a highway leads to increased production since the will be more infrastructure development. The production funct.....
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