【導(dǎo)讀】1.products.2.3.4.lower.1.Why?fromfreetrade.2.powerful.

　　

【正文】 rency held outside the United States. Based on the numbers presented in the question, this annual value varies between $ billion ( x $185 billion) and $ billion ( x $260 billion). If this money stays overseas permanently, then the value of seigniorage is just equal to the amount of dollars held outside the United States, or $185 billion to $260 billion. In other words, the United States receives goods and services worth this amount of money from foreigners and paid for them with pieces of green paper that are never redeemed for . goods and services. b. Who in the United States realizes this seigniorage? ANSWER. The . government realizes this seigniorage. Who in the United States benefits from this seigniorage is an issue in political economy and depends what the government does with the money: cuts taxes, spends it (which raises the further question of on whom), uses it to reduce the deficit, etc. CHAPTER 4 SUGGESTED SOLUTIONS TO CHAPTER 4 PROBLEMS 1. From base price levels of 100 in 2020, Japanese and . price levels in 2020 stood at 102 and 106, respectively. a. If the 2020 $:￥ exchange rate was $, what should the exchange rate be in 2020? ANSWER. If e2020 is the dollar value of the yen in 2020, then according to purchasing power parity e2020/ = 106/102 or e2020 = $. b. In fact, the exchange rate in 2020 was ￥ 1 = $. What might account for the discrepancy? (Price levels were measured using the consumer price index.) ANSWER. The discrepancy between the predicted rate of $ and the actual rate of $ could be due to mismeasurement of the relevant price indices. Estimates based on narrower price indices reflecting only traded goods prices would probably be closer to the mark. Alternatively, it could be due to a switch in investors39。 preferences from dollar to nondollar assets. 2. Two countries, the United States and England, produce only one good, wheat. Suppose the price of wheat is $ in the United States and is ￡ in England. a. According to the law of one price, what should the $:￡ spot exchange rate be? ANSWER. Since the price of wheat must be the same in both nations, the exchange rate, e, is $. b. Suppose the price of wheat over the next year is expected to rise to $ in the United States and to ￡ in England. What should the oneyear $:￡ forward rate be? ANSWER. In the absence of uncertainty, the forward rate, f, should be $. c. If the . government imposes a tariff of $ per bushel on wheat imported from England, what is the maximum possible change in the spot exchange rate that could occur? ANSWER. If e is the exchange rate, then wheat selling in England at ￡ will sell in the United States for + , where is the . tariff on English wheat. In order to eliminate the possibility of arbitrage, + must be greater than or equal to $, the price of wheat in the . or e $. Thus the maximum exchange rate change that could occur is ( )/ = %. This solution assumes that the pound and dollar prices of wheat remain the same as before the tariff. 3. If expected inflation is 100 percent and the real required return is 5 percent, what will the nominal interest rate be according to the Fisher effect? ANSWER. According to the Fisher effect, the relationship between the nominal interest rate, r, the real interest rate a, and the expected inflation rate, i, is 1 + r = (1 + a)(1 + i). Substituting in the numbers in the problem yields 1 + r = x 2 = , or r = 110%. 4. In early 1996, the shortterm interest rate in France was %, and forecast French inflation was %. At the same time, the shortterm German interest rate was % and forecast German inflation was %. a. Based on these figures, what were the real interest rates in France and Germany? ANSWER. The French real interest rate was in Germany was b. To what would you attribute any discrepancy in real rates between France and Germany? ANSWER. The most likely reason for the discrepancy is the inclusion of a higher inflation risk ponent in the French real interest rate than in the German real rate. Other possibilities are the effects of currency risk or transactions costs precluding this seeming arbitrage opportunity. 5. In July, the oneyear interest rate is 12% on British pounds and 9% on . dollars. a. If the current exchange rate is $:￡ 1, what is the expected future exchange rate in one year? ANSWER. According to the international Fisher effect, the spot exchange rate expected in one year equals x $. b. Suppose a change in expectations regarding future . inflation causes the expected future spot rate to decline to $:￡ 1. What should happen to the . interest rate? ANSWER. If rus is the unknown . interest rate, and assuming that the British interest rate stayed at 12% (because there has been no change in expectations of British inflation), then according to the IFE, = (1+rus)/ or rus = %. 6. Suppose that in Japan the interest rate is 8% and inflation is expected to be 3%. Meanwhile, the expected inflation rate in France is 12%, and the English interest rate is 14%. To the nearest whole number, what is the best estimate of the oneyear forward exchange premium (discount) at which the pound will be selling relative to the French franc? ANSWER. Based on the numbers, Japan39。s real interest rate is about 5% (8% 3%). From that, we can calculate France39。s nominal interest rate as about 17% (12% + 5%), assuming that arbitrage will equate real interest rates across countries and currencies. Since England39。s nominal interest rate is 14%, for interest rate parity to hold, the pound should sell at around a 3% forward premium relative to the French franc. 7. Chase Econometrics h