Q1. - What are the uses of Balance of Payments data? Is the trade balance sensitive to exchange rates? Are exchange rates sensitive to the current account? What roles does the current account play regarding the capital account and the national economy?
Q2. - How does the gold standard adjust trade deficits and surpluses? Give an example detailing all the steps that ensue after a trade deficit is incurred. Are there any parallels to the monetary model of exchange rates? To a fixed exchange rate regime? Can we use the gold standard today?
Q3. - What are the current advantages to member countries of the European Union? What are the disadvantages? What conditions are necessary to have a successful monetary and economic union? How are the monetary and fiscal policies of the European Union countries exercised? - There are current news reports about the European Monetary Union being in substantial trouble - even that the Euro as a currency may collapse. If this were to be the case, what forces do you think would make the collapse of the Union and the Euro possible?
Q4. - Discuss the determinants of foreign exchange rates. Include a discussion of basic Purchasing Power Parity [e* = f(Pi/Pj)] as well as a discussion of the pure Monetary Model of exchange rates [e*= h(M, y, r)], and of the spot exchange rate model [e = g (M, y, r, a, w]. (In textbook, p. 159, e* = f (m, v, y) where v = Y/M, the velocity of money).
Q5. - Discuss the forward market for foreign exchange. Include forward rates, cross-exchange rates, the forward premium, and long and short forward speculative positions. Briefly describe a Eurodollar futures hedge against falling interest rates.
Q6. - Define the exchange rate. Compare fixed and floating rates. What are managed rates? Which of theseis most quickly affected by PPP (inflation). Is the textbook PPP the same as the classroom's monetary model's Pi and Pj? Explain the exchange rate system in existence today.
Q7. - Compare hedging with forwards and options. Detail the advantages and drawbacks of these alternatives. Comment on the statement "Once a position is hedged, price volatility is no longer a management concern." Should you hedge purchases of bonds and stocks in foreign stock markets?
Q8. - Are Offshore Banking Centers set up to deal primarily with illegal money? Describe the International Debt Crisis which began in 1982. Trace its origins to the early 1970's. Here raw material prices were thought could never fall but would always rise. Does it compare in any way to 2008-2009?
Attachment:- MACROFINANCIAL RISKS Graphs.rar