## [answered] a) Determine which account of the Balance-of-Payments is af

a) Determine which account of the Balance-of-Payments is affected by each ofthe following transactions. (E.g. Current Account ? Transfers)

(i) A local firm ships US\$80 million of merchandise to China.

(ii) National Commercial Bank, a local company, pays US\$1 million individends to foreign shareholders.

(iii)A German company builds a manufacturing facility in your country.

(iv)A local resident purchases a retirement condo in Florida for US\$10million.

(v) You travel to the United States for holiday and spend US\$500

(vi)You invest in the South Korean stock market by buying US\$500 in stock.

b) Consider three countries Hungary, Mexico and the United States, which sell identical t-shirts. If the price of the t-shirt is 500 forint, 20 pesos and US\$2.Calculate The purchasing power parity exchange rate between

(i) Mexico and the U.S.?

(ii) Hungary and the U.S.

c) Suppose the current exchange rate between the Mexican peso and the U.S.dollar is 12 peso = US\$1 and the exchange rate between the Hungarian forintand the U.S. dollar is 215 forint = US\$1. Based on the PPP calculations is parta, what do you expect to happen to the exchange rate between:

(i) Mexico and the U.S.

(ii) Hungary and the U.S.?

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