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Q. Why do governments prefer to avoid current account deficits that are too large?
Answer: A current account debit may possibly pose no problem if the borrowed funds are channeled into productive domestic investment projects that pay for themselves with the revenue they generate in the future. Though sometimes large current account deficits represent temporarily high consumption resulting from misguided government policies or some other malfunctioning of the economy occasionally the investment projects that draw on foreign funds may be badly planned and so on. In such cases the government strength wish to reduce the current account deficit immediately rather than face problems in repaying its foreign debt in the future.
Q. Explain why the exchange rate model based on PPP is a long-run theory. Answer: PPP theory is a financial approach to the exchange rate. It is a long-run theory for
Q. Explain why the distinction between debt and equity finance is useful in analyzing the response of developing countries to unforeseen events such as recession or terms of trade
Q. Suppose Russia's inflation rate is 200% over one year, but the inflation rate in Switzerland is only 2%. According to relative PPP, what should happen over the year to the Swis
complete notes in foreign investment instiutions
1 Answer True or False. Brief explain your answer. No credit without explanation. a Bretton Woods. During the Bretton Woods system countries with large current account surpluses
Q. Discuss the effects of government deficits on the current account. Answer: A difficult and hard issue that during the Reagan administration the creation of twin deficits whe
Q. Present the case for floating exchange rates. Answer: 1. Monetary policy autonomy Governments would able to use financial policy to reach internal and extern
Q. Use the fixed exchange rate DD - AA model to describe the economy's short-run equilibrium. Then, use the same figure to study an expansionary monetary policy. Show that the pol
Q. If scale economies were not only external to firms, but were also external to individual sites. That is, the larger the worldwide industry (regardless of where plants or firms
Question: a) With the help of illustrative and numerical examples explain fully the concepts of spatial and triangular parity and arbitrage in the context of foreign exchange.
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