Question $1$

$1\mathrm{.}1$ Suppose that there are two bonds, one issued in South African Rand $($R$)$ in South Africa, and one issued in Botswana Pula $($BWP$)$ in Botswana. Both government securities are one$-$year bonds$$paying the face value of the bond one year from now. The exchange rate, E$,$ stands at $0\mathrm{.}70$ BWP per N$$.$ Further details on the bonds are given in the table below:

Country of Issue

Face Value

Price

South Africa

R$20,000$

R$19,600$

Botswana

BWP$20,000$

BWP$19,000$

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a$)$ What is the nominal interest rate on both bonds?

b$)$ If you expect the Rand to depreciate against the Botswana Pula, which bond

should you buy and why?

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$1\mathrm{.}2$ If the average price of a Mercedes$-$Benz GLE$450$d in Namibia is N$ $2,500,900$ whilst the same car sells for $108,300$ Euros in Germany and the Euro is $0\mathrm{.}050$ to the Namibian dollar $($N$$),$ what is the real exchange rate?

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$1\mathrm{.}3$ Suppose Namibia purchased Ford Rangers from South Africa worth N$$200$ million and that South Africans spent N$$150$ million whilst visiting Namibia as tourists. Moreover, South African investors purchased N$$20$ million worth of Namibian government bonds and earned N$$30$ million on their Namibian equities. Lastly, Namibians received donations worth N$$30$ million from South Africa for drought relief.

a$)$ Calculate Namibia$$s trade balance with South Africa.

b$)$ Calculate Namibia$$s net investment income

c$)$ What is the amount of net transfers received by Namibia?

d$)$ Calculate Namibia$$s current account $($CA$)$ balance.

e$)$ What does the CA balance mean for Namibia?

Question $2$