Suppose the treasurer of your company stops by your office and asks you to make a brief report in 30 minutes about the likelihood of Croatia devaluing its currency, the kuna. Currently, the kuna is managed by the central bank, but it is not fixed. Your company's treasurer is worried about a depreciation of the kuna and the negative effect it might have on the company's profitability. You send your assistant to get the balance of payments figures online from the IMF's International Financial Statistics, and he returns in 10 minutes with the following unorganized and non interpreted figures:
Balance of Payments, Croatia
(Figures in millions)
Transfers............................................ -90
Imports of goods and services...................-510
Investment income................................. -30
Reserves account.................................. -45
Exports of goods and services...................+324
Long-term investments...........................+300
Short-term investments........................... +55
Net errors and omissions.......................... 0
Capital account.................................... -4
a. Arrange the balance of payments figures in their proper order.
b. Explain whether Croatia is "living within its means." Which account shows this?
c. Comment on whether the Croatian central bank is intervening in the foreign exchange market. If it is intervening, explain whether it is buying or selling foreign exchange.
d. Explain how likely it is that the kuna will depreciate in the near future. Is it more likely that the kuna will appreciate? Explain.
e. What actions, if any, could your company take to profit from the economic changes implied by these balance of payments figures?