11) While the purchase of foreign assets by U.S. citizens is recorded in the U.S
ID: 1109973 • Letter: 1
Question
11) While the purchase of foreign assets by U.S. citizens is recorded in the U.S. balance of payments, the purchase of U.S. assets by foreign citizens is not. 2) A country that is saving more than it is investing domestically has a current account deficit. 13) Suppose the euro/peso exchange rate was to decrease. This means that the peso has appreciated versus the euro 14) When covered interest parity holds between the U.S. and Germany it implies that the $- return for a risk-less German investment is the same as the s-return for a risk-less U.S. investment. 15) A deficit in the current account implies a surplus in the financial account 16) Suppose Es cro1.1. Then the euro price of a Californian wine worth $10 is 11 euros. 17) When the exchange rate is set now for a currency trade that will take place sometime in the future, that contracted exchange rate is referred to as a forward exchange rate. 18) Uncovered interest parity is less likely to hold than covered interest rate parity in the presence of exchange rate risk (e.g., a currency whose value fluctuates wildly). 19) When countries run persistent current account deficits (i.e., trade deficits) itis usually because they have low productivity 20) Uncovered interest parity is similar to covered interest rate parity except it uses the expected future spot rate instead of the forward rate.Explanation / Answer
11) False, because the current accounts includes the change in the net asset holding which include both the domestic holding of forein assets as well as foreign holdings of domestic assets.
12) False , because bit will pay for its import from savings.
13) Peso has depreciated as we will get less euro per peso or we will be paying more peso for a euro.
14) True, because underr covered interest rate parity ther eis no scope of making money through arbitrage.
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