国际金融 英文习题大题

1、chapter 2 international monetary system suggested answers and solutions to end-of-chapter questions and problems questions 1. explain greshams law. answer: greshams law refers to the phenomenon that bad (abundant) money drives good (scarce) money out of circulation. this kind of phenomenon was often

2、 observed under the bimetallic standard under which both gold and silver were used as means of payments, with the exchange rate between the two metals fixed. 2. explain the mechanism which restores the balance of payments equilibrium when it is disturbed under the gold standard. answer: the adjustme

3、nt mechanism under the gold standard is referred to as the price- specie-flow mechanism expounded by david hume. under the gold standard, a balance of payment disequilibrium will be corrected by a counter-flow of gold. suppose that the u.s. imports more from the u.k. than it exports to the latter. u

4、nder the classical gold standard, gold, which is the only means of international payments, will flow from the u.s. to the u.k. as a result, the u.s. (u.k.) will experience a decrease (increase) in money supply. this means that the price level will tend to fall in the u.s. and rise in the u.k. conseq

5、uently, the u.s. products become more competitive in the export market, while u.k. products become less competitive. this change will improve u.s. balance of payments and at the same time hurt the u.k. balance of payments, eventually eliminating the initial bop disequilibrium. 3. suppose that the po

6、und is pegged to gold at 6 pounds per ounce, whereas the franc is pegged to gold at 12 francs per ounce. this, of course, implies that the equilibrium exchange rate should be two francs per pound. if the current market exchange rate is 2.2 francs per pound, how would you take advantage of this situa

7、tion? what would be the effect of shipping costs? answer: suppose that you need to buy 6 pounds using french francs. if you buy 6 pounds directly in the foreign exchange market, it will cost you 13.2 francs. alternatively, you can first buy an ounce of gold for 12 francs in france and then ship it t

8、o england and sell it for 6 pounds. in this case, it only costs you 12 francs to buy 6 pounds. it is thus beneficial to ship gold due to the overpricing of the pound. of course, you can make an arbitrage profit by selling 6 pounds for 13.2 francs in the foreign exchange market. the arbitrage profit

9、will be 1.2 francs. so far, we assumed that shipping costs do not exist. if it costs more than 1.2 francs to ship an ounce of gold, there will be no arbitrage profit. 4. discuss the advantages and disadvantages of the gold standard. answer: the advantages of the gold standard include: (i) since the

10、supply of gold is restricted, countries cannot have high inflation; (2) any bop disequilibrium can be corrected automatically through cross-border flows of gold. on the other hand, the main disadvantages of the gold standard are: (i) the world economy can be subject to deflationary pressure due to r

11、estricted supply of gold; (ii) the gold standard itself has no mechanism to enforce the rules of the game, and, as a result, countries may pursue economic policies (like de-monetization of gold) that are incompatible with the gold standard. 5. what were the main objectives of the bretton woods syste

12、m? answer: the main objectives of the bretton woods system are to achieve exchange rate stability and promote international trade and development. 6. one can say that the bretton woods system was programmed to an eventual demise. comment on this proposition. answer: the answer to this question is re

13、lated to the triffin paradox. under the gold- exchange system, the reserve-currency country should run bop deficits to supply reserves to the world economy, but if the deficits are large and persistent, they can lead to a crisis of confidence in the reserve currency itself, eventually causing the do

14、wnfall of the system. 7. explain how the special drawing rights (sdr) is constructed. also, discuss the circumstances under which the sdr was created. answer: sdr was created by the imf in 1970 as a new reserve asset, partially to alleviate the pressure on the u.s. dollar as the key reserve currency

15、. the sdr is a basket currency comprised of five major currencies, i.e., u.s. dollar, german mark, japanese yen, french franc, and british pound. currently, the dollar receives a 40% weight, mark 21%, yen 17%, franc 11%, and pound 11%. the weights for different currencies tend to change over time, r

16、eflecting the relative importance of each currency in international trade and finance. 9. there are arguments for and against the alternative exchange rate regimes. a. list the advantages of the flexible exchange rate regime. b. criticize the flexible exchange rate regime from the viewpoint of the p

17、roponents of the fixed exchange rate regime. c. rebut the above criticism from the viewpoint of the proponents of the flexible exchange rate regime. answer: a. the advantages of the flexible exchange rate system include: (i) automatic achievement of balance of payments equilibrium and (ii) maintenan

18、ce of national policy autonomy. b. if exchange rates are fluctuating randomly, that may discourage international trade and encourage market segmentation. this, in turn, may lead to suboptimal allocation of resources. c. economic agents can hedge exchange risk by means of forward contracts and other

19、techniques. they dont have to bear it if they choose not to. in addition, under a fixed exchange rate regime, governments often restrict international trade in order to maintain the exchange rate. this is a self-defeating measure. whats good about the fixed exchange rate if international trade need

20、to be restricted? 10. in an integrated world financial market, a financial crisis in a country can be quickly transmitted to other countries, causing a global crisis. what kind of measures would you propose to prevent the recurrence of a asia-type crisis. answer: first, there should be a multination

21、al safety net to safeguard the world financial system from the asia-type crisis. second, international institutions like imf and the world bank should monitor problematic countries more closely and provide timely advice to those countries. countries should be required to fully disclose economic and

22、financial information so that devaluation surprises can be prevented. third, countries should depend more on domestic savings and long-term foreign investments, rather than short-term portfolio capital. there can be other suggestions. 11. discuss the criteria for a good international monetary system

23、. answer: a good international monetary system should provide (i) sufficient liquidity to the world economy, (ii) smooth adjustments to bop disequilibrium as it arises, and (iii) safeguard against the crisis of confidence in the system. 12. once capital markets are integrated, it is difficult for a

24、country to maintain a fixed exchange rate. explain why this may be so. answer: once capital markets are integrated internationally, vast amounts of money may flow in and out of a country in a short time period. this will make it very difficult for the country to maintain a fixed exchange rate. mini

25、case: will the united kingdom join the euro club? when the euro was introduced in january 1999, the united kingdom was conspicuously absent from the list of european countries adopting the common currency. although the current labor government led by prime minister tony blair appears to be in favor

26、of joining the euro club, it is not clear at the moment if that will actually happen. the opposition tory party is not in favor of adopting the euro and thus giving up monetary sovereignty of the country. the public opinion is also divided on the issue. whether the united kingdom will eventually joi

27、n the euro club is a matter of considerable importance for the future of european union as well as that of the united kingdom. the joining of the united kingdom with its sophisticated finance industry will most certainly help propel the euro into a global currency status rivaling the u.s. dollar. th

28、e united kingdom on its part will firmly join the process of economic and political unionization of europe, abandoning its traditional balancing role. investigate the political, economic and historical situations surrounding the british participation in the european economic and monetary integration

29、 and write your own assessment of the prospect of british joining the euro club. in dong so, assess from the british perspective, among other things, (1) potential benefits and costs of adopting the euro, (2) economic and political constraints facing the country, and (3) the potential impact of brit

30、ish adoption of the euro on the international financial system, including the role of the u.s. dollar. suggested solution to will the united kingdom join the euro club? whether the u.k. will join the euro club will be a political as much as economic decision. recently, the u.k. economy was convergin

31、g with those of euro-zone countries. economic conditions in terms of government budgets, interest rates, and inflation rate are becoming similar to those in euro-zone countries. on an economic ground, this convergence is creating a condition that is conducive to u.k.s joining the euro club. as recen

32、tly pointed out by wim duisenberg, the president of the european central bank, british opposition to joining the euro club is more “psycho-political” than justified on economic grounds. since many political leaders in france and germany consider adoption of the euro as a step toward the european pol

33、itical union, the u.k. is likely to join the euro-zone if it is prepared to join the european political union as well. once the u.k. joins the euro-zone, the euro will no doubt become a global currency at the expense of the u.s. dollar. chapter 3 balance of payments suggested answers and solutions t

34、o end-of-chapter questions and problems questions 1. define the balance of payments. answer: the balance of payments (bop) can be defined as the statistical record of a countrys international transactions over a certain period of time presented in the form of double-entry bookkeeping. 2. why would i

35、t be useful to examine a countrys balance of payments data? answer: it would be useful to examine a countrys bop for at least two reasons. first, bop provides detailed information about the supply and demand of the countrys currency. second, bop data can be used to evaluate the performance of the co

36、untry in international economic competition. for example, if a country is experiencing perennial bop deficits, it may signal that the countrys industries lack competitiveness. 3. the united states has experienced continuous current account deficits since the early 1980s. what do you think are the ma

37、in causes for the deficits? what would be the consequences of continuous u.s. current account deficits? answer: the current account deficits of u.s. may have reflected a few reasons such as (i) a historically high real interest rate in the u.s., which is due to ballooning federal budget deficits, th

38、at kept the dollar strong, and (ii) weak competitiveness of the u.s. industries. 4. in contrast to the u.s., japan has realized continuous current account surpluses. what could be the main causes for these surpluses? is it desirable to have continuous current account surpluses? answer: japans contin

39、uous current account surpluses may have reflected a weak yen and high competitiveness of japanese industries. massive capital exports by japan prevented yen from appreciating more than it did. at the same time, foreigners exports to japan were hampered by closed nature of japanese markets. continuou

40、s current account surpluses disrupt free trade by promoting protectionist sentiment in the deficit country. it is not desirable especially when it is brought about by the mercantilist policies. 5. comment on the following statement: “since the u.s. imports more than it exports, it is necessary for t

41、he u.s. to import capital from foreign countries to finance its current account deficits.” answer: the statement presupposes that the u.s. current account deficit causes its capital account surplus. in reality, the causality may be running in the opposite direction: u.s. capital account surplus may

42、cause the countrys current account deficit. suppose foreigners find the u.s. a great place to invest and send their capital to the u.s., resulting in u.s. capital account surplus. this capital inflow will strengthen the dollar, hurting the u.s. export and encouraging imports from foreign countries,

43、causing current account deficits. 6. explain how a country can run an overall balance of payments deficit or surplus. answer: a country can run an overall bop deficit or surplus by engaging in the official reserve transactions. for example, an overall bop deficit can be supported by drawing down the

44、 central banks reserve holdings. likewise, an overall bop surplus can be absorbed by adding to the central banks reserve holdings. 7. explain official reserve assets and its major components. answer: official reserve assets are those financial assets that can be used as international means of paymen

45、ts. currently, official reserve assets comprise: (i) gold, (ii) foreign exchanges, (iii) special drawing rights (sdrs), and (iv) reserve positions with the imf. foreign exchanges are by far the most important official reserves. 8. explain how to compute the overall balance and discuss its significan

46、ce. answer: the overall bop is determined by computing the cumulative balance of payments including the current account, capital account, and the statistical discrepancies. the overall bop is significant because it indicates a countrys international payment gap that must be financed by the governmen

47、ts official reserve transactions. 9. since the early 1980s, foreign portfolio investors have purchased a significant portion of u.s. treasury bond issues. discuss the short-term and long-term effects of foreigners portfolio investment on the u.s. balance of payments. answer: as foreigners purchase u

48、.s. treasury bonds, u.s. bop will improve in the short run. but in the long run, u.s. bop may deteriorate because the u.s. should pay interests and principals to foreigners. if foreign funds are used productively and contributes to the competitiveness of u.s. industries, however, u.s. bop may improv

49、e in the long run. 10. describe the balance of payments identity and discuss its implications under the fixed and flexible exchange rate regimes. answer: the balance of payments identity holds that the combined balance on the current and capital accounts should be equal in size, but opposite in sign

50、, to the change in the official reserves: bca + bka = -bra. under the pure flexible exchange rate regime, central banks do not engage in official reserve transactions. thus, the overall balance must balance, i.e., bca = -bka. under the fixed exchange rate regime, however, a country can have an overa

51、ll bop surplus or deficit as the central bank will accommodate it via official reserve transactions. 11. exhibit 3.3 indicates that in 1991, the u.s. had a current account deficit and at the same time a capital account deficit. explain how this can happen? answer: in 1991, the u.s. experienced an ov

52、erall bop deficit, which must have been accommodated by the federal reserves official reserve action, i.e., drawing down its reserve holdings. 12. explain how each of the following transactions will be classified and recorded in the debit and credit of the u.s. balance of payments: (1) a japanese in

53、surance company purchases u.s. treasury bonds and pays out of its bank account kept in new york city. (2) a u.s. citizen consumes a meal at a restaurant in paris and pays with her american express card. (3) a indian immigrant living in los angeles sends a check drawn on his l.a. bank account as a gi

54、ft to his parents living in bombay. (4) a u.s. computer programmer is hired by a british company for consulting and gets paid from the u.s. bank account maintained by the british company. answer: _ transactions credit debit _ japanese purchase of u.s. t bonds japanese payment using nyc account u.s.

55、citizen having a meal in paris paying the meal with american express gift to parents in bombay receipts of the check by parents (goodwill) export of programming service british payment out its account in u.s. _ 13. construct the balance of payment table for japan for the year of 1998 which is compar

56、able in format to exhibit 3.1, and interpret the numerical data. you may consult international financial statistics published by imf or research for useful websites for the data yourself. answer: a summary of the japanese balance of payments for 1998 (in $ billion) creditsdebits current account (1)

57、exports646.03 (1.1) merchandise374.04 (1.2) services62.41 (1.3) factor income209.58 (2) imports-516.50 (2.1) merchandise-251.66 (2.2) services-111.83 (3.3) factor income-153.01 (3) unilateral transfer5.53-14.37 balance on current account120.69 (1) + (2) + (3) capital account (4) direct investment3.2

58、7-24.62 (5) portfolio investment73.70-113.73 (5.1) equity securities16.11-14.00 (5.2) debt securities57.59-99.73 (6) other investment39.51-109.35 balance on financial account-131.22 (4) + (5) + (6) (7) statistical discrepancies4.36 overall balance-6.17 official reserve account6.17 source: imf, international financial statistics yearbook, 1999. note: capital account in the above table corresponds the financial account in imfs balance of payment st