FNCE 423 – INTERNATIONAL FINANCE
Due: In class, on Wednesday
1. Use the following information on a hypothetical economy, the Bobbi Empire, for the year
2014.
BOP Accounts
National Income and Product
Accounts
(NIPA)
Current account surplus of $1 billion
GNP is $8 billion
Capital account surplus of $75 million
Consumption is $5 billion
Foreign factors located in the Empire earn $150 million
Government purchases total $1.1
billion
Trade surplus of $700 million
A $250 million government budget
Net of -$50 million in unilateral transfers
deficit
a. Calculate the Empire’s financial account balance. What has happened to the
Empire’s foreign asset position? Explain.
b. Calculate NFP (Net factor payments) for the Empire. How much did the Empire’s factors
abroad earn?
c. Is the Empire a net borrower or net lender? Explain how you know.
d. What is the total amount of Taxes collected by the Empire?
2. Show how each of the following would affect the U.S. balance of payments. Include a
description of the debit and credit items, and in each case say which specific account is
affected, e.g. imports of goods and services (IM), exports of home assets (EX H ), etc.A
a. A California computer manufacturer purchases a $500 hard disk from a Chinese
company, paying the funds from a bank account in China.
b. A U.S. tourist to Japan sells his iPad to a local resident for yen worth US$200.
c. The U.S. central bank sells $500 million of its holdings of U.S. Treasury bonds to a
British financial firm and purchases pound sterling foreign reserves.
d. A foreign owner of Bank of America shares receives $10,000 in dividend payments, which
are paid into a New York Bank.
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3. To answer this question, you must obtain data from the Bureau of Economic Analysis
(BEA) website. Under the “International” tab and the section Balance of Payments
(International Transactions), you can find a link to “Interactive Tables: International Transactions”
Click on “Begin Using The Data” button. On the following page, out of the options available to
you, click on “International Transactions.” Various table options will now pop up, we want to
choose Table 1.1: U.S. International Transactions. After clicking into Table 1, use the “modify”
button on the top right corner to select the year and format you need. We want the annual
balance of payments data for the year 2008. Using the BOP data, compute the following for the
U.S. (rounding to the nearest million).
a. Trade balance (TB), net factor income from abroad (NFIA), net unilateral transfers
(NUT), and current account (CA)
b. Financial account (FA)
c. Capital account (KA)
d. Balance of payments (BOP). Not that this may not equal zero because of statistical
discrepancy. Verify that the discrepancy is the same as the one reported by the BEA.
4.
True, False, Uncertain. Explain your answers: (responses should be 2 lines max each question)
a. If there is a crisis in Argentina, and exports of US goods to Argentina fall, the current account of
the US will worsen.
b. If national saving exceeds investment, there will be a current account surplus.
c. An African country with current account deficit must be suffering from poor economic
management
d. It is impossible for each nation to have a balance of payment surplus
5.
Short Answers
Discuss the effects of government deficits on the current account. (5 lines)
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