Homework One

Homework $1$ is due on Sep $17.$

Total points:$20.$

Problem $1$

$(2$ points$)$ Examine the summary of the balance of payments of the United States for $2019$

provided below. Compute and discuss the balance on the current account and its subaccounts.

a$.$ Balance on the U$.$S$.$ trade in goods, in services, and in goods and services combined.

b$.$ Balance on the U$.$S$.$ primary income.

c$.$ Balance on the U$.$S$.$ secondary income.

d$.$ Balance on the U$.$S$.$ current account.

A Summary of the U$.$S$.$ Balance of Payments for $2019($in $ billion$)$

Credits

Current Account

$[1]$ Exports

$[1\mathrm{.}1]$ Goods

$[1\mathrm{.}2]$ Services

$[2]$ Imports

$[2\mathrm{.}1]$ Goods

$[2\mathrm{.}2]$ Services

$[3]$ Primary income

$[4]$ Secondary income

Balance on current account

$[[1]+[2]+[3]+[4]]$

Capital Account

Balance on capital account

Financial Account $($excluding official

reserves$)$

$[5]$ Direct investment

$[6]$ Portfolio investment

$[6\mathrm{.}1]$ Equity securities

$[6\mathrm{.}2]$ Debt securities

$[6\mathrm{.}3]$ Derivatives, net

$2,528\mathrm{.}4$

$1,652\mathrm{.}1$

$876\mathrm{.}3$

$-3,104\mathrm{.}7$

$-2,513\mathrm{.}6$

$-591\mathrm{.}1$

$1,124\mathrm{.}9$

$159\mathrm{.}2$

$0\mathrm{.}1$

$-6\mathrm{.}5$

$-6\mathrm{.}4$

$-122\mathrm{.}2$

$-$Problem $2$

$(2$ points$)$ While you were visiting London, you purchased a Jaguar for $35,100,$ payable in

three months. You have enough cash at your bank in New York City, which pays $0\mathrm{.}35\%$

interest per month, compounding monthly, to pay for the car. Currently, the spot exchange

rate is $$1\mathrm{.}37$ per $$ and the three$-$month forward exchange rate is $$1\mathrm{.}41$ per $.$ In London, the

money market interest rate is $2\mathrm{.}0\%$ for a three$-$month investment. There are two alternative

ways of paying for your Jaguar.

a$.$ If you keep the funds at your bank in the United States and buy a $35,100$ forward,

what will be the dollar cost of the Jaguar you purchased?

Note: Do not round intermediate calculations. Round off the final answer to

nearest whole dollar.

b$.$ Alternatively, you can buy a certain pound amount spot today and invest the pound

amount in the U$.$K$.$ for three months so that the maturity value becomes equal to $35,100$ :

What will the dollar cost of your Jaguar if you uise this payment method?

Note: Do not round intermediate calculations. Round off the final answer to nearest

whole dollar.

c$.$ Which method would you prefer? Why?