International Finance MIDTERM EXAM

MID-TERM EXAMINATION
Course: International Finance
Question 1:
US. Balance of Payments, 2011 (billions of dollars)
Current Account
Merchandise trade
Exports
Imports

1,497.4
-2,235.8

Services Balance
Travel and Transportation, net
Military transaction, net
Other services, net

178.5
31.3
-11.6
158.8

Income receipts and payments
balance

227.0

Unilateral transfers balance

-133.0

Capital and Financial Account
Capital account transactions, net

-1.2

U.S.-owned assets abroad
U.S. official reserve assets
U.S. other assets abroad
Foreign-owned assets in the U.S.
Foreign official assets in the U.S.
Other foreign assets in the U.S.
Financial derivatives, net
Statistical discrepancy

-483.6
-16
-467.6
1,000.9
211.9
789.0
39.0
-89,2

Given the items shown in the above table, calculate the U.S. Current account balance, Financial
account balance and Official settlement balance.
Question 2


Using the diagrams on the money market and foreign exchange market, explain the impact of an
increase in US output and decrease in EU money supply on exchange rate E(USD/EUR)

Question 3
Based on the monetary model to exchange rates, explain the impact of an increase in U.S.
interest and increase in EU output on exchange rate E(USD/EUR)
Question 4
Based on the real exchange rate approach to exchange rates, explain how does an increase in the
real exchange rate affect exports and imports?