Home Page EC 340, International Trade and Finance Files EC 340 Problem Sets Exchange Rates

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1. What is a current account transaction? Give an example.

2. What is a capital account transaction? Give an example.

3. Suppose you had to explain to a person on the street (who is not an economist) why a current account deficit must be accompanied by a capital account surplus. What would you say?

4. Suppose that the exchange rate between U.S. dollars and Swedish krona is $1 = 6.6565 krona. How many dollars can 10,000 krona be exchanged for?

5. You will be vacationing in Belgium and wish to take with you $500 in Belgian francs. If the exchange rate is $1 = 29.14 Belgian francs, how many francs will you need?

6. Explain covered interest parity.

David A. Latzko 318 COB Department of Business and Economics Wilkes University Wilkes-Barre, PA 18766 phone: (717) 408-4718 fax: (717) 408-4917 dlatzko@wilkes.edu wilkes1.wilkes.edu/~dlatzko