International Finance

Topics: United States dollar, International trade, Pound sterling Pages: 2 (533 words) Published: January 14, 2013
2-2-a: How would a relatively high home inflation rate affect the home country’s current account, other things being equal?

A. A high home inflation rate could cause a current account a deficit since it results to decrease exports and increase imports.
2-12-a: U.S.-based MNCs commonly invest in foreign securities. Assume that the dollar is presently weak and is expected to strengthen over time. How will these expectations affect the tendency of U.S. investors to invest in foreign securities?

A. This expectations of a strong dollar would discourage U.S. investors from investing abroad, The other way, There has been an increased tendency that Japan investors invest in foreign securities due to strong Yen.

2-13-a: Explain why a stronger dollar could enlarge the U.S. balance of trade deficit. Explain why a weaker dollar could affect the U.S. balance of trade deficit.

A. A stronger dollar makes U.S. goods less attractive to foreign importers due to expensive price to purchase and it may reduce U.S. exports. The other way, U.S. imports will be more attractive to U.S. exporters due to cheap price to purchase foreign goods and may increase U.S. imports. And this trade imbalance will result trade deficit. And a weaker home currency increases the prices of imports purchased by the home country and reduces the prices paid by foreign businesses for the home country’s exports. This should cause a decrease in the home country’s demand for imports and an increase in the foreign demand for the home country’s exports, and therefore increase the current

3-3-4: Explain how the appreciation of the Japanese yen against the U.S. dollar would affect the return to a U.S. firm that borrowed Japanese yen and used the proceeds for a U.S. project. A. When U.S. firm to return borrowed Japanese yen, exchange rate to convert yen to dollar will be lower and cost of borrowing will be higher as a result of this appreciation.

3-3-6: Utah Bank’s bid price for Canadian...
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