Macro Economy Homework (Balance of Payments & Foreign Exchange Rates)

  

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Balance of Payments and Foreign Exchange Rates
Part One: Balance of Payments
This worksheet makes use of two tables of data. The first table, the Lukistan Balance of
Payments data lists various components of the Balance of Payments as reported by
government. Some of these items are detailed accounts and some are summary accounts
of the other detailed accounts. Answer questions 1-5 using the Lukistan Balance of
Payments data.
Lukistan Balance of Payments
Components of the Balance of Payments
($)
Exports of goods and services
+ 440
Merchandise exports (including military sales)
+ 280
Exports of services
+ 40
Income Received from U.S. assets abroad
+ 120
Imports of goods and services
– 490
Merchandise imports (including military purchases)
– 360
Imports of services
– 60
Income Received from foreign assets in U.S.
– 70
Net unilateral transfers abroad
– 11
Outflow of U.S. capital
– 26
Inflow of foreign capital
+ 80
Increase in U.S. official reserve assets
– 14
Increase in foreign official assets in U.S.
+ 21
QUESTIONS 1-5:
When entering answers, use the same formatting you see in the table.
1. The Lukistan merchandise trade balance equals __________ billions of dollars.
2. The Lukistan current account balance equals __________ billions of dollars.
3. The Lukistan capital account balance equals __________ billions of dollars (include
changes in official reserves as part of capital flows).
4. Lukistan is experiencing a trade____________ (multiple choice).
5. The sum of the balance of payments for Lukistan, including both the current account,
the capital account, and the statistical discrepancy is:
Part Two: Foreign Exchange Rates (FOREX):
The following is a table of Forex cross-rates from a few years ago:
US $
Yen
Euro
CND $
UK pound
1 USD =
1
114.71
0.69
0.93
0.48
1 Yen =
0.008718
1
0.003012
0.008146
0.004171
1 Euro =
1.4500
166.3293
1
1.3549
0.6938
1 CND $ =
1.0702
122.7633
0.7381
1
0.5121
1 UK pound =
2.0899
239.7378
1.4413
1.9528
1
Questions 6-10 use this table of Forex rates. When entering your answers, enter only the
number (no sign for the currency such as “$”) and round your answer to two
decimals. Show both decimals, even if they are zero.
QUESTIONS 6-10:
6. A resident of the U.S. is visiting London, England. She goes to dinner in a restaurant in
London. The total tab for the dinner, including the tip, comes to 35.70 British
Pounds. She pays for the dinner using her Visa credit card. If the bank that processes her
Visa credit card uses the exchange rates listed here to convert the charge from Pounds to
US dollars, how much will the charge be when it shows up on her Visa bill when she gets
home?
7. A marketing vice-president of AKME Gmbh., a German manufacturer of e-commerce
do-it-yourself rockets is considering bidding on an order from Kayoteh LLC, a Canadian
distributor. AKME sells their rockets for 500 Euros each in Germany. AKME wants to
get at least this much money from any sales to Kayoteh. What is the minimum price in
Canadian dollars that AKME will insist on?
8. Dexter, a genius professor at the University of Oxford in England is planning a visit to
Disney World in Florida next year. He figures that he will spend $ 500 USD per day for 3
days while he visits Disney World. Using the exchange rates given in Exhibit 12, how
much money does Dexter have to save in his own currency of pounds to be able to afford
the trip? (consider only the daily expenses stated here)
9. Continuing from the previous question. Dexter, is still planning the same trip and is
still planning to spend the same amount of money in US dollars while at Disney
World. However, he checks the latest exchange rates online and discovers that the US
dollar has “dropped” by 10% against the pound. In other words the US dollar is now
weaker by 10%. What is the new exchange rate in terms of how many pounds can be
purchased with one US dollar? (round off your answer to 2 decimal places)
10. Continuing from the previous question. Dexter is still planning the same trip and
planning to spend the same amount of US dollars per day. The exchange rate has
changed as you calculated in the previous question. How many pounds does Dexter now
need to be able to afford this trip (be sure to use only two decimal places of the exchange
rate you calculated)?

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