economics of international trade

1. Suppose that on Euro cost 80 cents (USD) on January 1 and 75 cents (USD) on March 1. As the director of the purchasing department of your firm, you are buying goods at a value of 500,000 Euro from a European firm. When will you purchase the goods? Explain in detail.

2. Suppose the pound is pegged to gold at 20 pounds per ounce and the US dollar is at 35 dollars per ounce. The current market exchange rate is 1.8 dollars per pound, what will be your trading strategy? Who will it change with a floating exchange rate?

3. Suppose that the three-month interest rates in both the United Kingdom and the United States are equal to 2.1 percent and the current price of one British pound is $1.41. If uncovered interest rate parity holds, what do you expect one pound will cost in three months? Explain in detail how this works.

4. To reduce a current account deficit, a country must increase its private saving, reduce domestic investment, or cut its government budget deficit.Nowadays, some people recommend restrictions on imports from China (and other countries)to reduce the American current account deficit. How would higher U.S .barriers on restrictions would necessarily reduce a U.S. current account deficit?

Instructions:

1.Straight and direct answers

2. Maximum of one page or Half a page for each questions.

3 .APA format .

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