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- Explain the international balance of payments (BOP) and the reason for its use.
- Examine how surpluses and deficits in the balance of payments (BOP) affect exchange rates.
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- What effect does a high exchange rate have on imports, exports, and that country's production?Is a country for which imports and exports comprise a large fraction of the GDP more likely to adopt a flexible exchange rate or a fixed (hard peg) exchange rate?How does a fall in the exchange rate cause an increase in the cost of raw imported materials?
- Who would demand U.S. dollars in the foreign exchange market? U.S. firms and households wishing to purchase foreign goods and services Foreigners wishing to purchase U.S goods and services U.S. households wishing to purchase U.S. goods and servicesExplain how exchange rates may impact the performance of international equity investment.Describe, with detailed explanations, the four components of the current account of the balance of payments.
- Explain why an increase in national saving (S) relative to investment (I) may lead to a current account surplus under flexible exchange rates.Compare the effects of monetary and fiscal policies (i.e. strengthened or weakened) to maintain internal balance(s) of an open economy under fixed and floating exchange rate regimes.Describe the foreign exchange market and its components.
- What are the benefits of having a fixed exchange rate?Explain fixed exchange rates and floating exchange rates and discuss the impact of fiscal and monetary policy under these two rates.For small, open economies that export and import a large volume of goods and services, a fixed exchange rate often make sense. Why does it make sense? And at what cost to the country?