Openness- financial market

Question 1

capital controls

Answer 1

restrictions on foreign assets that domestic residents could hold, and on domestic assets that foreigners could hold

Question 2

openness in the financial market def

Answer 2

ability of financial investors to choose between domestic and foreign assets

Question 3

capital controls today

Answer 3

much more limited- financial markets becoming more closely integrated

Question 4

openness for financial investors

Answer 4

allows them to hold domestic and foriegn assets to diversify and speculate

Question 5

foreign exchange

Answer 5

buying/selling foriegn currency

Question 6

volume of transactions in foreign exchange shows

Answer 6

importance of international financial transactions

Question 7

openness implication

Answer 7

allows country to run trade deficits and surpluses

Question 8

current account transactions

Answer 8

record of nations transactions w the rest of the world in a time period

Question 9

current account balance

Answer 9

sum of net payments to and from rest of the world

Question 10

current account surplus

Answer 10

positive net payments

Question 11

current account deficit

Answer 11

negative net payments

Question 12

how can country finance deficits

Answer 12

receiving gifts from other countries, increase in net foreign holdings, positive net capital flows

Question 13

GDP GNP difference

Answer 13

GDP measures value added domestically, GNP measures value added by domestic factors of production

Question 14

when does using GDP or GNP not make a difference

Answer 14

when the economy is closed

Question 15

GNP =

Answer 15

GDP + NI

Question 16

choosing btw foreign and domestic assets

Answer 16

domestic interest paying asset vs foreign interest paying asset;

Question 17

why is USD preferred

Answer 17

stronger, easily exchanged, cannot be traced once exchanged

Question 18

arbitrage

Answer 18

domestic interest rate = foreign interest rate - expected appreciation of domestic currency

Question 19

assess assumption that financial investors only hold bonds w highest expected rate of return

Answer 19

too strong- 1. ignores transacrion costs, 2. ignores risk. but not far off