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# A U.S. bank loaned a Canadian oil company 1 million U.S. dollars. The Canadian company then used the entire loan

A U.S. bank loaned a Canadian oil company 1 million U.S. dollars. The Canadian company then used the entire loan to buy mining equipment from a U.S. company. As a result of these transactions, by how much and in which direction did: A. U.S. net exports change? B. U.S. net capital outflow change? 2. A U.S. mutual fund uses \$1 million to buy yen from a Japanese bank. It then uses these yen to buy stocks in a Japanese electronics firm. The Japanese electronic firm then exchanges the \$1 million dollars of yen for dollars from a U.S. bank. It uses these dollars to buy equipment manufactured by a company located in the U.S. As a result of these exchanges, by how much, if at all, and in which direction does: A. U.S. net exports change? B. U.S. net capital outflow change? 3. A country recently had \$800 billion worth of domestic investment and its residents purchased \$400 billion worth of foreign assets. If foreigners purchased \$100 billion of this country’s assets, what was this country’s saving? Explain how your found your answer. 4. How do we find the real exchange rate from the nominal exchange rate? 5. In the U.S. a television costs \$400. In South Africa the same television costs 3000 rand (the currency of South Africa). The nominal exchange rate is 8 rand per dollar. A. Find the real exchange rate. Show your work. B. In terms of dollars where is the television cheapest? 6. The nominal exchange rate is 90 Pakistani rupees per dollar. The price of a shirt in Pakistan is 1800 rupees. The same shirt sells for \$25 in the U.S. A. What is the real exchange rate? Show your work. B. Can arbitragers make a profit? C. If your answer to C is yes, where would they buy and where would they sell? 7. An economy recently had 800 billion euros of saving and 600 billion euros of net capital outflow. What was its investment? What was its quantity of loanable funds supplied? 8. If the exchange rate rises, foreign residents want to purchase ______ domestic goods and domestic residents want to purchase _____ foreign goods. In the market for foreign-currency exchange, these changes are shown as a _______ in the quantity of dollars ______. 9. Due to concerns about a rising level of debt relative to GDP, Congress and the President cut expenditures and raise taxes. What does this policy change do to the equilibrium values of the interest rate and the quantity of loanable funds? 10. In 2011 Greek citizens were concerned about the size of government debt. Fearful that the government might be unable to fulfill its promise to insure depositors in Greek banks against losses created by bank failures, depositors moved funds out of Greek banks. Because of depositors reactions what happened to net capital outflow?

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