Assignment 2
Chapter 2 Flow of Funds
Short Answer Questions
Answer the following questions:
1. Suppose you are engaged in trade with a country, explain how each of the following factors
will affect your business?
• Foreign country’s inflation rate increases relative to the home country.
• Continuous depreciation of the foreign country’s currency in which the exports are
invoiced.
2.Assume the U.S. dollar is presently strong and is expected to strengthen further over time.
How will these expectations affect the tendency of U.S. investors to invest in foreign securities?
3. Read the article ‘Japan’s current account surplus falls to 8-year low’ and answer the
following questions.
a. Identify the main causes for the country’s current account position and the decline in the value
of the Japanese Yen.
b. What are the pros and cons of the decline in Japanese Yen value?
c. Japan has realized continuous current account surplus. Is it desirable to have continuous
current account surpluses?
4. Read the article ‘India conquers current account deficit hurdle.’ and answer the following
questions:
a. Identify the reasons for the balance in the current account of India and the more stable value of the
currency.
b. What could be the advantages of a more balanced current account position for India.