International Monetary Economics Essay Example

decrease by the amount of the check. This is an example of trading one foreign asset for another. Tourist expenditure counts as a service import and a current account debit for Canada, and the signature on the Visa slip entitles the restaurant to receive 200 CAD from CUBIC, making it an asset or claim on a future payment from CUBIC. Therefore, the tourist sells an asset to Spain and generates a 200 CAD credit in the Canadian financial account.

The Euro poses less risk for an individual.When the rest of one's wealth declines, the Euro often increases in value, providing some relief by yielding a relatively high payout in International Monetary Economics, especially when one's remaining wealth is unexpectedly high. Holding onto Euros can therefore decrease the variability of overall wealth.

PROBLEM 7.A The budget constraints for each period are as follows: Yell +82 YE + (1 + r)BE = Q, where 82 is the agent's net foreign wealth at the end of period 1 . By combining these equations, we arrive at Yell + In other words, total present value of consumption must equal the total present value of endowment. B. The agent aims to maximize lifetime utility while following the international budget constraint: r Max log(CO ) + log((l + -CLC )+YE). The first order condition leads to CO=CO -c because + r) = 1.

Using the international budget constraint (??), we find that C= (1 + r)YE + YE. Given Bal = O and 1.5 x 10+35 = 20 2.5, we can conclude that CIA ?-10. This means that in the first period, the agent borrows 10

units of the consumption good in international capital markets. 2 d. In a country with current account deficit, present consumption is imported while future consumption is exported; conversely, a country with a current account surplus exports present consumption and imports future consumption. 3