托马斯国际金融课后习题答案.docx
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托马斯国际金融课后习题答案
Revisedasof23November2020
托马斯国际金融课后习题答案
Suggestedanswerstoquestionsandproblems
(inthetextbook)
Chapter2
2.Disagree,atleastasageneralstatement.Onemeaningofacurrentaccountsurplusisthatthecountryisexportingmoregoodsandservicesthanitisimporting.Onemighteasilyjudgethatthisisnotgood—thecountryisproducinggoodsandservicesthatareexported,butthecountryisnotatthesametimegettingtheimportsofgoodsandservicesthatwouldallowitdomoreconsumptionanddomesticinvestment.Inthiswayacurrentaccountdeficitmightbeconsideredgood—theextraimportsallowthecountrytoconsumeandinvestdomesticallymorethanthevalueofitscurrentproduction.Anothermeaningofacurrentaccountsurplusisthatthecountryisengaginginforeignfinancialinvestment—itisbuildingupitsclaimsonforeigners,andthisaddstonationalwealth.Thissoundsgood,butasnotedaboveitcomesatthecostofforegoingcurrentdomesticpurchasesofgoodsandservices.Acurrentaccountdeficitisthecountryrunningdownitsclaimsonforeignersorincreasingitsindebtednesstoforeigners.Thissoundsbad,butitcomeswiththebenefitofhigherlevelsofcurrentdomesticexpenditure.Differentcountriesatdifferenttimesmayweighthebalanceofthesecostsandbenefitsdifferently,sothatwecannotsimplysaythatacurrentaccountsurplusisbetterthanacurrentaccountdeficit.
4.Disagree.Ifthecountryhasasurplus(apositivevalue)foritsofficialsettlementsbalance,thenthevalueforitsofficialreservesbalancemustbeanegativevalueofthesameamount(sothatthetwoaddtozero).Anegativevalueforthisassetitemmeansthatfundsareflowingoutinorderforthecountrytoacquiremoreofthesekindsofassets.Thus,thecountryisincreasingitsholdingsofofficialreserveassets.
6.Itemeisatransactioninwhichforeignofficialholdingsof.assetsincrease.Thisisapositive(credit)itemforofficialreserveassetsandanegative(debit)itemforprivatecapitalflowsasthe.bankacquirespoundbankdeposits.Thedebititemcontributestoa.deficitintheofficialsettlementsbalance(whilethecredititemisrecorded"belowtheline,"permittingtheofficialsettlementsbalancetobeindeficit).Allothertransactionsinvolvedebitandcredititemsbothofwhichareincludedintheofficialsettlementsbalance,sothattheydonotdirectlycontributetoadeficit(orsurplus)intheofficialsettlementsbalance.
8.a.Merchandisetradebalance:
$330-198=$132
Goodsandservicesbalance:
$330-198+196-204=$124
Currentaccountbalance:
$330-198+196-204+3-8=$119
Officialsettlementsbalance:
$330-198+196-204+3-8+102-202+4=$23
b.Changeinofficialreserveassets(net)=-officialsettlementsbalance=-$23.
Thecountryisincreasingitsnetholdingsofofficialreserveassets.
10.a.Internationalinvestmentposition(billions):
$30+20+15-40-25=$0.
Thecountryisneitheraninternationalcreditornoradebtor.Itsholdingofinternationalassetsequalsitsliabilitiestoforeigners.
b.Acurrentaccountsurpluspermitsthecountrytoaddtoitsnetclaimsonforeigners.Forthisreasonthecountry'sinternationalinvestmentpositionwillbecomeapositivevalue.Theflowincreaseinnetforeignassetsresultsinthestockofnetforeignassetsbecomingpositive.
Chapter3
2.Exportsofmerchandiseandservicesresultinsupplyofforeigncurrencyintheforeignexchangemarket.Domesticsellersoftenwanttobepaidusingdomesticcurrency,whiletheforeignbuyerswanttopayintheircurrency.Intheprocessofpayingfortheseexports,foreigncurrencyisexchangedfordomesticcurrency,creatingsupplyofforeigncurrency.Internationalcapitalinflowsresultinasupplyofforeigncurrencyintheforeignexchangemarket.Inmakinginvestmentsindomesticfinancialassets,foreigninvestorsoftenstartwithforeigncurrencyandmustexchangeitfordomesticcurrencybeforetheycanbuythedomesticassets.Theexchangecreatesasupplyofforeigncurrency.Salesofforeignfinancialassetsthatthecountry'sresidentshadpreviouslyacquired,andborrowingfromforeignersbythiscountry'sresidentsareotherformsofcapitalinflowthatcancreatesupplyofforeigncurrency.
4.The.firmobtainsaquotationfromitsbankonthespotexchangerateforbuyingyenwithdollars.Iftherateisacceptable,thefirminstructsitsbankthatitwantstousedollarsfromitsdollarcheckingaccounttobuy1millionyenatthisspotexchangerate.ItalsoinstructsitsbanktosendtheyentothebankaccountoftheJapanesefirm.Tocarryoutthisinstruction,the.bankinstructsitscorrespondentbankinJapantotake1millionyenfromitsaccountatthecorrespondentbankandtransfertheyentothebankaccountoftheJapanesefirm.(The.bankcouldalsouseyenatitsownbranchifithasabranchinJapan.)
6.Thetraderwouldseekoutthebestquotedspotrateforbuyingeuroswithdollars,eitherthroughdirectcontactwithtradersatotherbanksorbyusingtheservicesofaforeignexchangebroker.Thetraderwouldusethebestratetobuyeurospot.Sometimeinthenexthourorso(or,typicallyatleastbytheendoftheday),thetraderwillentertheinterbankmarketagain,toobtainthebestquotedspotrateforsellingeurosfordollars.Thetraderwillusethebestspotratetosellherpreviouslyacquiredeuros.Ifthespotvalueoftheeurohasrisenduringthisshorttime,thetradermakesaprofit.
8.a.Thecrossratebetweentheyenandthekroneistoohigh(theyenvalueofthekroneistoohigh)relativetothedollar-foreigncurrencyexchangerates.Thus,inaprofitabletriangulararbitrage,youwanttosellkroneratthehighcrossrate.Thearbitragewillbe:
Usedollarstobuykronerat$krone,usethesekronertobuyyenat25yen/krone,andusetheyentobuydollarsat$yen.Foreachdollarthatyousellinitially,youcanobtain5kroner,these5kronercanobtain125yen,andthe125yencanobtain$.Thearbitrageprofitforeachdollaristherefore25cents.
b.Sellingkronertobuyyenputsdownwardpressureonthecrossrate(theyenpriceofkrone).Thevalueofthecrossratemustfallto20(=yen/kronetoeliminatetheopportunityfortriangulararbitrage,assumingthatthedollarexchangeratesareunchanged.
10.a.TheincreaseinsupplyofSwissfrancsputsdownwardpressureontheexchange-ratevalue($/SFr)ofthefranc.ThemonetaryauthoritiesmustintervenetodefendthefixedexchangeratebybuyingSFrandsellingdollars.
b.Theincreaseinsupplyoffrancsputsdownwardpressureontheexchange-ratevalue($/SFr)ofthefranc.ThemonetaryauthoritiesmustintervenetodefendthefixedexchangeratebybuyingSFrandsellingdollars.
c.Theincreaseinsupplyoffrancsputsdownwardpressureontheexchange-ratevalue($/SFr)ofthefranc.ThemonetaryauthoritiesmustintervenetodefendthefixedexchangeratebybuyingSFrandsellingdollars.
d.Thedecreaseindemandforfrancsputsdownwardpressureontheexchange-ratevalue($/SFr)ofthefranc.ThemonetaryauthoritiesmustintervenetodefendthefixedexchangeratebybuyingSFrandsellingdollars.
Chapter4
2.Youwillneeddataonfourmarketrates:
Thecurrentinterestrate(oryield)onbondsissuedbythe.governmentthatmatureinoneyear,thecurrentinterestrate(oryield)onbondsissuedbytheBritishgovernmentthatmatureinoneyear,thecurrentspotexchangeratebetweenthedollarandpound,andthecurrentone-yearforwardexchangeratebetweenthedollarandpound.Dotheseratesresultinacoveredinterestdifferentialthatisveryclosetozero
4.a.The.firmhasanassetpositioninyen—ithasalongpositioninyen.Tohedgeitsexposuretoexchangeraterisk,thefirmshouldenterintoaforwardexchangecontractnowinwhichthefirmcommitstosellyenandreceivedollarsatthecurrentforwardrate.Thecontractamountsaretosell1millionyenandreceive$9,000,bothin60days.
b.Thestudenthasanassetpositioninyen—alongpositioninyen.Tohedgetheexposuretoexchangeraterisk,thestudentshouldenterintoaforwardexchangecontractnowinwhichthestudentcommitstosellyenandreceivedollarsatthecurrentforwardrate.Thecontractamountsaretosell10millionyenandreceive$90,000,bothin60days.
c.The.firmhasanliabilitypositioninyen—ashortpositioninyen.Tohedgeitsexposuretoexchangeraterisk,thefirmshouldenterintoaforwardexchangecontractnowinwhichthefirmcommitstoselldollarsandreceiveyenatthecurrentforwardrate.Thecontractamountsaretosell$900,000andreceive100millionyen,bothin60days.
6.Relativetoyourexpectedspotvalueoftheeuroin90days($euro),thecurrentforwardrateoftheeuro($euro)islow—theforwardvalueoftheeuroisrelativelylow.Usingtheprincipleof"buylow,sellhigh,"youcanspeculatebyenteringintoaforwardcontractnowtobuyeurosat$euro.Ifyouarecorrectinyourexpectation,thenin90daysyouwillbeabletoimmediatelyresellthoseeurosfor$euro,pocketingaprofitof$foreacheurothatyouboughtforward.Ifmanypeoplespeculateinthisway,thenmassivepurchasesnowofeurosforward(increasingthedemandforeurosforward)willtendtodriveuptheforwardvalueoftheeuro,towardacurrentforwardrateof$euro.
8.a.TheSwissfrancisataforwardpremium.Itscurrentforwardvalue($SFr)isgreaterthanitscurrentspotvalue($SFr).
b.Thecoveredinterestdifferential"infavorofSwitzerland"is((1+/-(1+=.(Notethattheinterestrateusedmustmatchthetimeperiodoftheinvestment.)Thereisacoveredin