【導讀】management?twodecades.andgloballevels.4.Howisacountry?goodsandservices?zero-sum?gameinwhichone. increasing-sum?realistic?scitizensproduce

　　

【正文】 this may be so. Answer: Once capital markets are integrated internationally, vast amounts of money may flow in and out of a country in a short time period. This will make it very difficult for the country to maintain a fixed exchange rate. 13. Assess the possibility for the euro to bee another global currency rivaling the . dollar. If the euro really bees a global currency, what impact will it have on the . dollar and the world economy? Answer: In light of the large transactions domain of the euro, which is parable to that of the . dollar, and the mandate for the European Central Bank (ECB) to guarantee the moary stability in Europe, the euro is likely to bee another global currency over time. A major uncertainty about this prospect is the lack of political integration of Europe. If Europe bees politically more integrated, the euro is more likely to bee a global currency. If the euro bees a global currency, it will e at the expense of the dollar. Currently, the . derives substantial benefits from the dollar?s status as the dominant global currency – for instance, the . can run trade deficits without having to maintain substantial foreign exchange reserves, can carry out international mercial and financial transactions in dollars without bearing exchange risk, etc. If the euro is to be used as a major denomination, reserve, and invoice currency in the world economy, dollarbased agents will start to bear more exchange risk, among other things. IM22 MINI CASE: WILL THE UNITED KINGDOM JOIN THE EURO CLUB? When the euro was introduced in January 1999, the United Kingdom was conspicuously absent from the list of European countries adopting the mon currency. Although the current Labor government led by Prime Minister Tony Blair appears to be in favor of joining the euro club, it is not clear at the moment if that will actually happen. The opposition Tory party is not in favor of adopting the euro and thus giving up moary sovereignty of the country. The public opinion is also divided on the issue. Whether the United Kingdom will eventually join the euro club is a matter of considerable importance for the future of European Union as well as that of the United Kingdom. The joining of the United Kingdom with its sophisticated finance industry will most certainly help propel the euro into a global currency status rivaling the . dollar. The United Kingdom on its part will firmly join the process of economic and political unionization of Europe, abandoning its traditional balancing role. Investigate the political, economic and historical situations surrounding the British participation in the European economic and moary integration and write your own assessment of the prospect of British joining the euro club. In dong so, assess from the British perspective, among other things, (1) potential benefits and costs of adopting the euro, (2) economic and political constraints facing the country, and (3) the potential impact of British adoption of the euro on the international financial system, including the role of the . dollar. Suggested Solution to Will the United Kingdom Join the Euro Club? Whether the . will join the euro club will be a political as much as economic decision. Recently, the . economy was converging with those of eurozone countries. Economic conditions in terms of government budgets, interest rates, and inflation rate are being similar to those in eurozone countries. On an economic ground, this convergence is creating a condition that is conducive to .?s joining the euro club. As recently pointed out by Wim Duisenberg, the President of the European Central Bank, British opposition to IM23 joining the euro club is more “psychopolitical” than justified on economic grounds. Since many political leaders in France and Germany consider adoption of the euro as a step toward the European political union, the . is likely to join the eurozone if it is prepared to join the European political union as well. Once the . joins the eurozone, the euro will no doubt bee a global currency rivaling the . dollar. CHAPTER 3 BALANCE OF PAYMENTS SUGGESTED ANSWERS AND SOLUTIONS TO ENDOFCHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Define the balance of payments. Answer: The balance of payments (BOP) can be defined as the statistical record of a country?s international transactions over a certain period of time presented in the form of doubleentry bookkeeping. 2. Why would it be useful to examine a country?s balance of payments data? Answer: It would be useful to examine a country?s BOP for at least two reasons. First, BOP provides detailed information about the supply and demand of the country?s currency. Second, BOP data can be used to evaluate the performance of the country in international economic petition. For example, if a country is experiencing perennial BOP deficits, it may signal that the country?s industries lack petitiveness. 3. The United States has experienced continuous current account deficits since the early 1980s. What do you think are the main causes for the deficits? What would be the consequences of continuous . current account deficits? IM24 Answer: The current account deficits of . may have reflected a few reasons such as (I) a historically high real interest rate in the ., which is due to ballooning federal budget deficits, that kept the dollar strong, and (ii) weak petitiveness of the . industries. 4. In contrast to the ., Japan has realized continuous current account surpluses. What could be the main causes for these surpluses? Is it desirable to have continuous current account surpluses? Answer: Japan?s continuous current account surpluses may have reflected a weak yen and high petitiveness of Japanese industries. Massive capital exports by Japan prevented y