EC 340

Problem Set #7 - Exchange Rates

Due by the end of class on March 23, 1998.

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