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A. Current Account
B. Capital Account
C. Financial Account
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Balance
-8 21
-6 73
-3
Balance
-53
Fore ign as sets (from U.S.)
U.S. Treasuri es
U.S. age nci es bon ds
U.S. sto cks
U.S. bon ds
Direct Investmen ts to U.S.
Claims on U.S. b anks
Claims on oth er U.S. en tities
Fore ign O ffic ial Asse ts in U.S.
U.S. Curren cy
Increase
308
Decre ase
Balance
-1 31
7
1
325
-3 37
-29
421
35
599
546
129
0
Demand
S upply
--
36
NOTES Q
CURRENT ACCOUNT BALANCE AS % OF
GDP IN SELECTED COUNTRIES: 19702003
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Ended by president Nixon in 1971 when US currency was too strong (other
countries did not want to revalue their currencies) and US economy
(exports) too week.
5) Assume that the Interest Rate Parity theory holds. If the interest rate on euro-denominated
assets is 4 percent and the euro is expected to appreciate at a 3 percent rate in respect to US
dollar, what is the interest rate on US dollar- denominated assets?
A) 7 percent.
B) 4 percent.
C) 3 percent. D) 1 percent. E) minus one percent.
6) Assume that the Interest Rate Parity theory holds. Suppose that Bank of England cuts the
interest rate on assets denominated in British pounds, while the Federal Reserve System keeps
the US interest rate constant. As a result of such a cut, US dollar (in respect to British
pound) will immediately____________.
A. appreciate
B. depreciate.
(!!! THIS NOT THE SAME QUESTION AS #5 !!!)
7) American consumers stop consuming French wine (thus French wine is no longer imported
to the US). Such situation results in __________ of French currency (that is of European
Euro).
A) depreciation
B) deflation C) denomination D) appreciation
Answer to all questions is the first letter of the alphabet..
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