31 2009 14 15 FAX lfJ UUlIUltJ

VVvbull V bull ~ J (I- r 7 r=7 1 J

0 ~10411Ir r 1-_l r 10 w

20 10 ZoOW ~(l

HOMEWORK ROUTE FORM ~~ Stanford Center for Professional Development Student Information

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Please attach this route form to ALL MATERIALS and submit ALL to Stanford Center for Professional Development

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Name 8 flt IfrN GtJtftN (Signed)

Student 10 osr-O b03 Major tf~ampf

UndergraduaE~

I will not discuss t rnAAllrn others till Aug 16

~JU~AllJ legitimate reasons

gYr] (AI-Cv

07 31 2009 14 15 FAX I4J 002015

Summer 2009MSampE247s Internatlonallnve tments Instructor Vee-Tlen Fu Friday 073109 315-430pm Midterm Examination

In Class Close Book Close Notes Fonnula Sheet Dictionary Calculators OK Levich Chapters 3-10 plus Chair Ben Bernankes testimony

The Stanford University Honor Code The Honor Code is an undertaking of the students individually and collectively

that they will not give or receive unpermitted aid In examinations that they will do their share and take an active part in seeing to it that others as well as themselves

uphold the spirit and letter of the Honor Code

I acknowledge and accept the Honor Code 2009 since some of my fellow students may have to take the e

Plese attempt SIX out of eight questions professionally within the allocated time Try the reat as the bonus questions 88 time permits

Overnight delivery of luck Fred Smith is best known today as the founder of FedEx But In 1965 he was still a sophomore at Yale where he noted in an econom1cs term paper that delivery systems were not keeping up with increasing needs for speed and dependability in a dawning computer age After leaving the Marine Corps In 1969 he joined his stepfather at Arkansas Aviation Sales a struggling equipment and maintenance finn for air carriers and shortly thereafter bought control of the company He observed firsthand the difficulties of shipping spare parts on short notice He saw the need for an integrated air and ground delivery system with a central hub that could connect a large number of points more effidently than a polnt-to-polnt delivery system In 1971 at the age of 27 Smith founded Federal Express In 1974 Federal bp wasltruggllng It had only $5000 left In Its checking account but needed $24000 for Its weekly jet fuel payment Fred Smith took the Incentive to gamble literally He took the finns remaining $5000 and boarded a plane for Las Vegas where tie won $27000 When asked how he had mustered the nerve to do this he replied What difference did It make Without the funds for the fuel companies we couldnt haye ftown anyway Source Brealey Myers Allen and Marcus Fundamentals of Corporate Finance Sixth Edition McGraw-Hili copy2009 and

Roger Frock Changing How the World Does Business Fed Exs Incredible Journey to Success The Inside Story (San Francisco Berrett-Koehler Publishers 2006)

Legend has it that Smith received a grade of C on this paper In fact he doesnt remember the grade

0731 2009 1415 FAX IgJ UUJ I UI)

MSampE 247s International Investments 731109 Midterm Page 2 of 12

Qyostlon 1 (20 points)

Which models that you have studied from Exchange rate determination indicate that currency strengthens when Its interest rate increases Which models indicate the opposite How do you explain the discrepancy

Hint

A Family Iree of Excbange Rate Models

[Answr to QUIton 20 Dolnt8l ---fr flnNtftt()~ ftJ- ~

t CUIYVt~ S~ vJ-ut ~r Nhf-

~ Nos skI ~el ~ - lectJJ-ltse ~~ fk ~ ~ ()J~ ~- rdu ~ c26 UWf5

~r ~h1Jevvl Iw- Irk ~r- 4gJ~ 0tI

middotEUJltolftc As~ MD~J PD( +y lAJ Jrho vt S I~ +~I Dppof~

07 31 2009 1416 FAX 141004 1015

MSampE 2478 Intemationallnvestments 73109 Midterm Page 3 of 12

IAnpwe to Quglga 120 lHIiolai - f ( +he N 1 ~ yr

1k W-rSJg~ MtId ~ ~ rk -~ fWshyjk ~ aft- ~MA art dtJ~ ~ hJe ~u ~ Iff rutru ~ amp0 ~ ~~ ~ ~ IW M tJvlutJ rJc ~ i tft rJfraquoUt Jo ~~IM- (Firlur

ed7 ~ fk ~ ~ ft ~ J~~ ~swu todi~ pf ~oldin~ ~Het f low r4 fk t4 ~ Cltlli ~ ~~ P(j fk tIO[ Ut~ f~ II- Ik Wed ~ 1Lampo ~~ ~ ~fj wvlL ~ (I- ~t- fdkJ nse luauue

of- ~ ~ +J- (1rUJJd vs W-) hIgt t1~ Viet t~ 0-~ ClJ ~ f Js ~

~~MIb60dJs~ ~~ij~ oY ~ hP firmiddot t~ ~ ~ 60 wampJ oJdl ~ Uv wet -o kj irerAA j r~cL ~ Oft kJkr vJtw 6~ s~~~

07 312009 1417 FAX I4J 005 015

MSampE 247amp International Investments 73109 Midterm Page 4 of 12

QUltSlon 2 (20 points)

(i) Determine the hedged return of one-year Australian bond investment with the following data

So =08271 Fo1 =08024 Australian bond yield =559 US borrowing rate =244

(II) Create the synthetic forward for Australian Dollar Compare It with the outright Australian Dollar forward Fo1bull Do you have any creative use of this price discrepancy

(iii) Note that Australian Dollar has been Big Mac indices friendly In the past Support or argue your approach in (i) with the following BlgMac Indices as of May 2009 Do you really need to hedge your investment What other Information are needed to answer the hedge-or-not-to-hedge question

I The hamburger standard Mac pitas

nlocM culftlKJ

hi 4Ioun

I pppoof tile

AdRI U- (-)WK(+) VIIuadoii 1ateI_ JOdI dollif lI

-Purehuln9-P_ par1ty IocIIPl1ct dWkltd I)y pr1cln III Un1ttd Stam fAveragufNIIW Yoril ChlClgo Allanllnd 51n F~dsco lDo1i1n pH pound lVMg httd -09 of prices I tiItO at bullbullDollaR pat _

SooortlS l4cl)onldmiddot5 ECOIgtOflut

0731 2009 1415 FAX IgJ UUJ I UI)

MSampE 247s International Investments 731109 Midterm Page 2 of 12

Qyostlon 1 (20 points)

Which models that you have studied from Exchange rate determination indicate that currency strengthens when Its interest rate increases Which models indicate the opposite How do you explain the discrepancy

Hint

A Family Iree of Excbange Rate Models

[Answr to QUIton 20 Dolnt8l ---fr flnNtftt()~ ftJ- ~

t CUIYVt~ S~ vJ-ut ~r Nhf-

~ Nos skI ~el ~ - lectJJ-ltse ~~ fk ~ ~ ()J~ ~- rdu ~ c26 UWf5

~r ~h1Jevvl Iw- Irk ~r- 4gJ~ 0tI

middotEUJltolftc As~ MD~J PD( +y lAJ Jrho vt S I~ +~I Dppof~

07 31 2009 1416 FAX 141004 1015

MSampE 2478 Intemationallnvestments 73109 Midterm Page 3 of 12

IAnpwe to Quglga 120 lHIiolai - f ( +he N 1 ~ yr

1k W-rSJg~ MtId ~ ~ rk -~ fWshyjk ~ aft- ~MA art dtJ~ ~ hJe ~u ~ Iff rutru ~ amp0 ~ ~~ ~ ~ IW M tJvlutJ rJc ~ i tft rJfraquoUt Jo ~~IM- (Firlur

ed7 ~ fk ~ ~ ft ~ J~~ ~swu todi~ pf ~oldin~ ~Het f low r4 fk t4 ~ Cltlli ~ ~~ P(j fk tIO[ Ut~ f~ II- Ik Wed ~ 1Lampo ~~ ~ ~fj wvlL ~ (I- ~t- fdkJ nse luauue

of- ~ ~ +J- (1rUJJd vs W-) hIgt t1~ Viet t~ 0-~ ClJ ~ f Js ~

~~MIb60dJs~ ~~ij~ oY ~ hP firmiddot t~ ~ ~ 60 wampJ oJdl ~ Uv wet -o kj irerAA j r~cL ~ Oft kJkr vJtw 6~ s~~~

07 312009 1417 FAX I4J 005 015

MSampE 247amp International Investments 73109 Midterm Page 4 of 12

QUltSlon 2 (20 points)

(i) Determine the hedged return of one-year Australian bond investment with the following data

So =08271 Fo1 =08024 Australian bond yield =559 US borrowing rate =244

(II) Create the synthetic forward for Australian Dollar Compare It with the outright Australian Dollar forward Fo1bull Do you have any creative use of this price discrepancy

(iii) Note that Australian Dollar has been Big Mac indices friendly In the past Support or argue your approach in (i) with the following BlgMac Indices as of May 2009 Do you really need to hedge your investment What other Information are needed to answer the hedge-or-not-to-hedge question

I The hamburger standard Mac pitas

nlocM culftlKJ

hi 4Ioun

I pppoof tile

AdRI U- (-)WK(+) VIIuadoii 1ateI_ JOdI dollif lI

-Purehuln9-P_ par1ty IocIIPl1ct dWkltd I)y pr1cln III Un1ttd Stam fAveragufNIIW Yoril ChlClgo Allanllnd 51n F~dsco lDo1i1n pH pound lVMg httd -09 of prices I tiItO at bullbullDollaR pat _

SooortlS l4cl)onldmiddot5 ECOIgtOflut

07 31 2009 1416 FAX 141004 1015

MSampE 2478 Intemationallnvestments 73109 Midterm Page 3 of 12

IAnpwe to Quglga 120 lHIiolai - f ( +he N 1 ~ yr

1k W-rSJg~ MtId ~ ~ rk -~ fWshyjk ~ aft- ~MA art dtJ~ ~ hJe ~u ~ Iff rutru ~ amp0 ~ ~~ ~ ~ IW M tJvlutJ rJc ~ i tft rJfraquoUt Jo ~~IM- (Firlur

ed7 ~ fk ~ ~ ft ~ J~~ ~swu todi~ pf ~oldin~ ~Het f low r4 fk t4 ~ Cltlli ~ ~~ P(j fk tIO[ Ut~ f~ II- Ik Wed ~ 1Lampo ~~ ~ ~fj wvlL ~ (I- ~t- fdkJ nse luauue

of- ~ ~ +J- (1rUJJd vs W-) hIgt t1~ Viet t~ 0-~ ClJ ~ f Js ~

~~MIb60dJs~ ~~ij~ oY ~ hP firmiddot t~ ~ ~ 60 wampJ oJdl ~ Uv wet -o kj irerAA j r~cL ~ Oft kJkr vJtw 6~ s~~~

07 312009 1417 FAX I4J 005 015

MSampE 247amp International Investments 73109 Midterm Page 4 of 12

QUltSlon 2 (20 points)

(i) Determine the hedged return of one-year Australian bond investment with the following data

So =08271 Fo1 =08024 Australian bond yield =559 US borrowing rate =244

(II) Create the synthetic forward for Australian Dollar Compare It with the outright Australian Dollar forward Fo1bull Do you have any creative use of this price discrepancy

(iii) Note that Australian Dollar has been Big Mac indices friendly In the past Support or argue your approach in (i) with the following BlgMac Indices as of May 2009 Do you really need to hedge your investment What other Information are needed to answer the hedge-or-not-to-hedge question

I The hamburger standard Mac pitas

nlocM culftlKJ

hi 4Ioun

I pppoof tile

AdRI U- (-)WK(+) VIIuadoii 1ateI_ JOdI dollif lI

-Purehuln9-P_ par1ty IocIIPl1ct dWkltd I)y pr1cln III Un1ttd Stam fAveragufNIIW Yoril ChlClgo Allanllnd 51n F~dsco lDo1i1n pH pound lVMg httd -09 of prices I tiItO at bullbullDollaR pat _

SooortlS l4cl)onldmiddot5 ECOIgtOflut

07 312009 1417 FAX I4J 005 015

MSampE 247amp International Investments 73109 Midterm Page 4 of 12

QUltSlon 2 (20 points)

(i) Determine the hedged return of one-year Australian bond investment with the following data

So =08271 Fo1 =08024 Australian bond yield =559 US borrowing rate =244

(II) Create the synthetic forward for Australian Dollar Compare It with the outright Australian Dollar forward Fo1bull Do you have any creative use of this price discrepancy

(iii) Note that Australian Dollar has been Big Mac indices friendly In the past Support or argue your approach in (i) with the following BlgMac Indices as of May 2009 Do you really need to hedge your investment What other Information are needed to answer the hedge-or-not-to-hedge question

I The hamburger standard Mac pitas

nlocM culftlKJ

hi 4Ioun

I pppoof tile

AdRI U- (-)WK(+) VIIuadoii 1ateI_ JOdI dollif lI

-Purehuln9-P_ par1ty IocIIPl1ct dWkltd I)y pr1cln III Un1ttd Stam fAveragufNIIW Yoril ChlClgo Allanllnd 51n F~dsco lDo1i1n pH pound lVMg httd -09 of prices I tiItO at bullbullDollaR pat _

SooortlS l4cl)onldmiddot5 ECOIgtOflut

07 31 2009 14 17 FAX [4] 006 015

MSampE 247s International Investments 73109 Midterm Page 5 of 12

[AOIWI[ to QYIlIlAn 2 20 polotl)

~ ~ -= Dmiddotg21-1 ro1 ()~rn~ g~ y ~ S-~ (jf ~a 1Y~Z

fopound~ JIO())

~ CmIr f 41MO 2middotvt76 lt $2rvu

t1M) US 10 middot3L11 AtIlO~ -Or frll ZD 9 f) ft c- r9 l ( fJI 21 t t L ~

NJl1bbl BOZ02v ~ $10lr5 1o - f1Jw c ~ r----))1- l t- yO bull lp

__ ()middototr ~0b ~ 0

(Ii) f)~ ~) If doVe middot

I (- I f- i ) ~ -- o5f3 x 0 S2fl )( I 00~~ Omiddot ~0241 I r t Ir ~ 0 J n )~f I 0 SS1

Ike igt k d 1J ~ ~ ~j-() Prb~ ~ he- pMilzk I f ~~ uJgt(n ~ yenfO JI~ if ~ ~ 80~ ffJr ~ ollth ~ uJ4b ~ ~1-----~

1 G~ ~Iv ffP (g~ M(JC Ut~) ~ wbak JJ tk-~~ JLrv- pound5 ~ h ~ ~ j-- ppp ~ ~ u wlte ~ w ~ fi4 ~ lPf hOJ1 Jtw ~ ~ Lfr- ~ bt (IJse 60 ~ ~ ~ ~t4 tU ~ t~~ L cMtl JJ ekeI

~ ~ woJJ htw k ~ air ~ x aIt LAJ~ -J J t-( 6- bct~~t iMb- MS lPUUUAfC ~V~1 middot

07 31 2009 1418 FAX 41007 1015

MSampE 247s InternationallnV8stments 73109 Midterm Page 6 of 12

Qumlan 3 (2QQQlntI)

Please pr-Ovlde three rules of thumb from your keen observation of the above BigMac indices as of May 08 2009 How will you apply your findings to international investments Be specific

[Anlwr to Qyetlon 3 20 DOlnt)

(j) Ck- ~ ampt ~ rr ~- fL)1IJ)~ tJk g~ Hac I~ ~ 60 Wl~ tJh ~ -+ ~~ Je Oll~~

(J) ~ ampblll)ll~~ ~ flP ckaJ~1- ~ II Uu ~ OUt- tuf tgtr M ~~rkd fP-A1ki ~ fiML - Tl~E

U _dh J aJ ~ A ~ (3) 5AoJs 1 ampJ rrr VtUiJU ~ ~ CfUA wipe- I)laquolQ ~ oA-S

fJtJr ~ 4 ~ W M bk ~ WJJ~ iA itushy~ ~ ~ rwch) h ~~s fJampJ 10 ClJIredr bocl- ~cr0l ~bri~ 6)IJif hIUL

Ar ~ nIl (JJJtU ~Jw-) wouloL ~J kd tJ ~or 4Jyd ~ (WSilriOAj HOoJ6llf tJU ~ 10 ~

I w~ ~ ~ ~ ~ B~ Hoc ~ ~ 0Jt ~ UJo d~ klcL ~ ttl M ~~ ~(j Ae ~ cr ~1-uJ- Sfeii4 J (woJd tal w-~ ~ ~ptJ eaJM~ JMr ~~ MWM 1 ltt- ~ tWJwJJ ~ ~r ~ O~ ~~ (-5 ~ If-tlJw dollrv l)J~eL ac~ lJtJ ~ eI) tlat ~ 0J ~aLd Iw-- ~ NJw Hvut ~ ~ teeeJ ~Ir Itr cruId ht ~cki ~I

liarmiddot M UJJe~ IA fItM~ IMJs ~ JdJ r~-J~I O-Ver bit ~ ~ NDeeD shy

07 31 2009 1418 FAX ~ 0081015

MSampE 247s International Investments 73109 Midterm Page 7 of 12

Question 4 (20 PRint)

Please Indicate the reverting forces act upon point B on the following diagram if you find the current financial variables being at pOint e and away from the parity line

[ADIWt[ to Qytlon 4 20 point] ct- rt not rlgt tlSklershy

--------

~~ i- t~ sibeftshy

s

--7 See

_

07 31 2009 1419 FAX 141 009015

MSampE 247s Intemational Investments 73109 Midterm Page 8 of 12

autltlon 5 (20 pointsgt

Please analyze with the stock and flow model the Impact on US currency from the assumed great success of Apples new tablet known as touch-screen 10 ultimate netbook and iPhone hybrid which will be available before this Christmas in Europe Please also show the trajectory of exchange rate

[Answer to QVlation 5 20 pont81

(Olrak

OUif -

D

~t

tr -gt (j( ALshy

1l hfr~ ~ ~ fk fprk- k1IJ fM-11 ~ 6-h ~ rokkk fA Uk ~ MoM 60 sJf ~J ttJns ~~ ~-w t~ US ~ rIut wJi 1fJrJ ~ ~~~ s~tu 1ks f~ oPk lli ~6fXi 1AJJJpound ~ ~ ~~ fVU)ft ~ ~ ~ ~ ~~ ~ dfJWA ~ f1 i iJJJj ~ ~ Us J wlt lL lyen6wtjB yen =I Pittamp 80 _ Jjillaquo St~~~tre

-~ r

bull

1 rj3)C)

ffilyenshy~~~----------------~~

~ 1~ d

S If

5

l STO OTO ~

XVd 6T tT 600Z TC I LO

14]011101507 31 2009 1419 FAX

MSampE 247s International Investments 73109 Midterm Page 9 of 12

Outton t 120 point) Consider the following four different responses to the same news Item and try to match each response with a named asset model (eg monetarist model overshooting model etc) If none of the named asset models can explain a particular market response diagram (ie there is no appropriate model) state that there is no applicable model Which model have you seen depicting the reality beat after the Uquldlty Injection due to the 8ub-prlme mortgage criSis In 2oo7-8

News announced at t US money supply grew by $2 billion In the most recent week

Assuming that the consensus market forecast on money supply growth was $1 billion the realized money growth is a positive surprise

[AnaWl[ to QyUon 6 2Q polntsJ

Response (b) Response (a)

v v lltVAfA (IHlVltfMiW)

Nominal exchange rate I

($IFC)

I

US price level

$ Interest rate

US money supply

Nominal exchange rate

($IFC)

US price level

$ interest rate

US money supply

t1 t2 Time

Model Name WlK4 flU lI-vvC I Icentj I Model Name

INWAlU~~ SWt ~ it doIJv ~_ _ LLf ~f

~-7fHO ~~)

I--shy___~f~~1~~ Us P~CL

J~~

~

fv~ tIod ~ ~

m () - I c1 (AT j~ 1 +-h~ C r 15 S) nD-Jshy ft~r itshy

~ 01 21 01507 31 2009 1419 FAX

MSampE 2478 International Investments 713109 Midterm Page 10 of 12

Response (c)

Nominal exchange rate I

JSLECl

I US price level

$ Interest rate

US money supply

Model Name I~$ 4Jr~i(Jjte

--

-

Response (d)

Nominalexchange rate bull------

US price level

$ interest rate

US money supply

Model Name VVCfqtVoVv A

Time

rf~

oIuJ ~ ~ 1t1tWd ~ tkfJeri ~ iL- Mar h~ ~l 1rk ~ ~ ot J- Zltm gt~ ~ (JIM Soles r-~ 6o amp ~ ow- Ug frwd hovA WUf

~ rro l()idolJ 1hu kgtf to S~~ ~~ J4 tY1w rePtJue- (p Uk ewoJ (--~ ~ S~~ ~ ~~ Db fJk fa ~ 60 ticJ- ~b LwNgt (Jk ~ ereJiJf- ~ (J4- ~ ~ oV tk fJI~

6-tuJ- ~ W[1l k Ut~~ 0 U tk ~ tvd ~J ~I

-kf)~~~ ~ tWJ ~ f~Jer MIlL ~ ~ ~M Ll ()Jell ocQr

141 013 015 0731 2009 1420 FAX

MSampE 2478 International Investments 73109 Midterm Page 11 of 12

QUutlOD 7 (20 points) What are the three main Issues raised and answered in the Town Hall meeting with [andor Semiannual Monetary Policy Report by] Chair Ben Bemanke How does each of the three main issues affect the living standards and Investment opportunities (domestic and intemational) in the US What was the response of each issue from Chair Ben Bemanke and from you the potential future Chair of the Federal Reserve

rA08WJ to QybullbulltJgD 7 20 RolDtl

1 IAJrbIl4 W tuwe voJlt ~~J l~ uztj

t ~~It sl4 +cblkr 3 ~ n~

~ ~ ~ lsgtuu ~ were 1 o-k- ~t1tj 4 ok ~~ ~ tk ~ CtiSLS QtJ ~ ~~Ci 4- tIrL ~~Ivwk ~~ ~ ~r(le 2 ~ 1k eo~ ~f2w IIt )f aAcl Dh ~aJ- ()t1 4kr ~~ i 3 ~~ bkf OIl ~ ~ ao Ov rorJJr cf ~ fuff~ ~ ~ ~~ cnsc)s

~ btt ~~J- yen ~~ kJ Ik ~~rP d- ~ ~ ~~ ~ reJeNe ttJ ~ bull sets Mn~ F~ tk a fUgtA--~~ M -p~JcuA ~ -rJ oIeck IJk Us dolw ~ ~olJH~ ~_ ()JL5~ 1KJ we L~ bO ~ trhL ~~ ckIJmiddot A-ow~ iPv ~~ ftofM MuJ- Ij haJ ~ fJfL ~ leA ~I- ~ albwcd to tel- amp ~~~ ~ Iuvt ~~ 1wi)tM1~~Jl~~~ f~ ~ncl1 ~ Cerw1e s~ke J-~~ fJk stJo 0- ~ ~ ~ whue ~lr- ls ~ol bo CO He r~J ~D-~ ~ ~ twA OJ b4 sloek-~ art ~~O P~Z~) ~~ owl ~ hok upoundL ~ IJL ~ ~~) ~ ampv~ ttrcrl fOr riveA~ b(If9~ ~ o-k Us WU k tAd odNJuJ~ U ~~ WluU IJJk CL~ ~

I

~ (tJJ- -14 rY f ~m -f i7~ 0 7pWf) 01) ~Pfn ~~~rgtf ~ oS ~ts-

rn 10 ~ PlrOf~ 1srnj()~ -r1i ~ yen~NJ Of ~J0 S(l i~ ~11 J oj (m ~ f1zc ~ IlI ms

~ ~ r~ ~~~ ~ ~m~ tal -f ~~~ ~5Qgt s W~l~s ~ 7fFt l (rw1

lXf ~ ~ ~ bull 11t 09 ~ aq Jo 11f fVW1 ~ ~rp -wJ rw ~ w f fl~ gt101 ~ 0gt(0 II( FyenJ

rt f(ffig egtltg rray5 ~ (1~~~ r~middottJ ~~(t1 - WVJri5 ~ f) ~~ rlJnOlNLYO ~ ~ ~ ~ 1n5~ ~ ~ voI

S3A ~ Arft~J1j) ~ ~sJ~ ~~ ~ Of ro~s ~H~ 1~ ~~ ro nr~(l fJrvJ Jf1 ~ ~ 4f7lJ ~ ~1 ~qWIV tkOJ1 r () -ffI ~ 1 iffiGJaJ OJ

JOrp ~ ~s+ J- -roO J() XVd O~tT 600~ TC LOSTO tIO ~

141 015 01507 31 2009 14 20 FAX

MSampE 247s Intemationallnvestments 73100 Midtenn Page 12 of 12

QUlltlon 8 (20 points)

Please analyze with the three-panel diagram of the significant trade deficit reduction induced by the great fiscal deficit improvement You may coin a term twin surp1us phenomenon

Hint

The Real Equilibrium in an Open Economy

---~ (a) The Market for Loanable Funds (b) Net Foreign Investment

Real Interest

Real Interest

NFl

Net Foreign Investment Quantity of Loanable Funds real

rJA J L ~e exchange(0 Asfk~-~ rate

~ 0It ~(~ clVJlr EI = real Emiddot

i) OJJaV~) ~ fu ~

~~~ rIrir malk V- Q Aijt-

Rate r

S (saving) Rate

(0 r

D (I+NFI)

)

s I)

~ t~ ~ r D(NX)

o ~ (oIttj ita r6t f1A detfr - Quany ofDolI

~ Ib ~ 0

~ ftI ~J~ (e) The M f FgncufflIncy EhBll9

fUt~~~~

~ (J~ ~ amp0 ~~~cltgt~ ~ UiL~wshy~ ~i ~C) biL~~ MI ~~ QfJ

[AnMr to QUIIlIRO 820 polol81

Pleae anawer directly on the above three panel diagram reg whe 1 (euroAI UeJ~14 r~ DV~ S IIAIIJJ~ U S ~p~tt1 hi f)re

07 31 2009 1418 FAX 41007 1015

MSampE 247s InternationallnV8stments 73109 Midterm Page 6 of 12

Qumlan 3 (2QQQlntI)

Please pr-Ovlde three rules of thumb from your keen observation of the above BigMac indices as of May 08 2009 How will you apply your findings to international investments Be specific

[Anlwr to Qyetlon 3 20 DOlnt)

(j) Ck- ~ ampt ~ rr ~- fL)1IJ)~ tJk g~ Hac I~ ~ 60 Wl~ tJh ~ -+ ~~ Je Oll~~

(J) ~ ampblll)ll~~ ~ flP ckaJ~1- ~ II Uu ~ OUt- tuf tgtr M ~~rkd fP-A1ki ~ fiML - Tl~E

U _dh J aJ ~ A ~ (3) 5AoJs 1 ampJ rrr VtUiJU ~ ~ CfUA wipe- I)laquolQ ~ oA-S

fJtJr ~ 4 ~ W M bk ~ WJJ~ iA itushy~ ~ ~ rwch) h ~~s fJampJ 10 ClJIredr bocl- ~cr0l ~bri~ 6)IJif hIUL

Ar ~ nIl (JJJtU ~Jw-) wouloL ~J kd tJ ~or 4Jyd ~ (WSilriOAj HOoJ6llf tJU ~ 10 ~

I w~ ~ ~ ~ ~ B~ Hoc ~ ~ 0Jt ~ UJo d~ klcL ~ ttl M ~~ ~(j Ae ~ cr ~1-uJ- Sfeii4 J (woJd tal w-~ ~ ~ptJ eaJM~ JMr ~~ MWM 1 ltt- ~ tWJwJJ ~ ~r ~ O~ ~~ (-5 ~ If-tlJw dollrv l)J~eL ac~ lJtJ ~ eI) tlat ~ 0J ~aLd Iw-- ~ NJw Hvut ~ ~ teeeJ ~Ir Itr cruId ht ~cki ~I

liarmiddot M UJJe~ IA fItM~ IMJs ~ JdJ r~-J~I O-Ver bit ~ ~ NDeeD shy

07 31 2009 1418 FAX ~ 0081015

MSampE 247s International Investments 73109 Midterm Page 7 of 12

Question 4 (20 PRint)

Please Indicate the reverting forces act upon point B on the following diagram if you find the current financial variables being at pOint e and away from the parity line

[ADIWt[ to Qytlon 4 20 point] ct- rt not rlgt tlSklershy

--------

~~ i- t~ sibeftshy

s

--7 See

_

07 31 2009 1419 FAX 141 009015

MSampE 247s Intemational Investments 73109 Midterm Page 8 of 12

autltlon 5 (20 pointsgt

Please analyze with the stock and flow model the Impact on US currency from the assumed great success of Apples new tablet known as touch-screen 10 ultimate netbook and iPhone hybrid which will be available before this Christmas in Europe Please also show the trajectory of exchange rate

[Answer to QVlation 5 20 pont81

(Olrak

OUif -

D

~t

tr -gt (j( ALshy

1l hfr~ ~ ~ fk fprk- k1IJ fM-11 ~ 6-h ~ rokkk fA Uk ~ MoM 60 sJf ~J ttJns ~~ ~-w t~ US ~ rIut wJi 1fJrJ ~ ~~~ s~tu 1ks f~ oPk lli ~6fXi 1AJJJpound ~ ~ ~~ fVU)ft ~ ~ ~ ~ ~~ ~ dfJWA ~ f1 i iJJJj ~ ~ Us J wlt lL lyen6wtjB yen =I Pittamp 80 _ Jjillaquo St~~~tre

-~ r

bull

1 rj3)C)

ffilyenshy~~~----------------~~

~ 1~ d

S If

5

l STO OTO ~

XVd 6T tT 600Z TC I LO

14]011101507 31 2009 1419 FAX

MSampE 247s International Investments 73109 Midterm Page 9 of 12

Outton t 120 point) Consider the following four different responses to the same news Item and try to match each response with a named asset model (eg monetarist model overshooting model etc) If none of the named asset models can explain a particular market response diagram (ie there is no appropriate model) state that there is no applicable model Which model have you seen depicting the reality beat after the Uquldlty Injection due to the 8ub-prlme mortgage criSis In 2oo7-8

News announced at t US money supply grew by $2 billion In the most recent week

Assuming that the consensus market forecast on money supply growth was $1 billion the realized money growth is a positive surprise

[AnaWl[ to QyUon 6 2Q polntsJ

Response (b) Response (a)

v v lltVAfA (IHlVltfMiW)

Nominal exchange rate I

($IFC)

I

US price level

$ Interest rate

US money supply

Nominal exchange rate

($IFC)

US price level

$ interest rate

US money supply

t1 t2 Time

Model Name WlK4 flU lI-vvC I Icentj I Model Name

INWAlU~~ SWt ~ it doIJv ~_ _ LLf ~f

~-7fHO ~~)

I--shy___~f~~1~~ Us P~CL

J~~

~

fv~ tIod ~ ~

m () - I c1 (AT j~ 1 +-h~ C r 15 S) nD-Jshy ft~r itshy

~ 01 21 01507 31 2009 1419 FAX

MSampE 2478 International Investments 713109 Midterm Page 10 of 12

Response (c)

Nominal exchange rate I

JSLECl

I US price level

$ Interest rate

US money supply

Model Name I~$ 4Jr~i(Jjte

--

-

Response (d)

Nominalexchange rate bull------

US price level

$ interest rate

US money supply

Model Name VVCfqtVoVv A

Time

rf~

oIuJ ~ ~ 1t1tWd ~ tkfJeri ~ iL- Mar h~ ~l 1rk ~ ~ ot J- Zltm gt~ ~ (JIM Soles r-~ 6o amp ~ ow- Ug frwd hovA WUf

~ rro l()idolJ 1hu kgtf to S~~ ~~ J4 tY1w rePtJue- (p Uk ewoJ (--~ ~ S~~ ~ ~~ Db fJk fa ~ 60 ticJ- ~b LwNgt (Jk ~ ereJiJf- ~ (J4- ~ ~ oV tk fJI~

6-tuJ- ~ W[1l k Ut~~ 0 U tk ~ tvd ~J ~I

-kf)~~~ ~ tWJ ~ f~Jer MIlL ~ ~ ~M Ll ()Jell ocQr

141 013 015 0731 2009 1420 FAX

MSampE 2478 International Investments 73109 Midterm Page 11 of 12

QUutlOD 7 (20 points) What are the three main Issues raised and answered in the Town Hall meeting with [andor Semiannual Monetary Policy Report by] Chair Ben Bemanke How does each of the three main issues affect the living standards and Investment opportunities (domestic and intemational) in the US What was the response of each issue from Chair Ben Bemanke and from you the potential future Chair of the Federal Reserve

rA08WJ to QybullbulltJgD 7 20 RolDtl

1 IAJrbIl4 W tuwe voJlt ~~J l~ uztj

t ~~It sl4 +cblkr 3 ~ n~

~ ~ ~ lsgtuu ~ were 1 o-k- ~t1tj 4 ok ~~ ~ tk ~ CtiSLS QtJ ~ ~~Ci 4- tIrL ~~Ivwk ~~ ~ ~r(le 2 ~ 1k eo~ ~f2w IIt )f aAcl Dh ~aJ- ()t1 4kr ~~ i 3 ~~ bkf OIl ~ ~ ao Ov rorJJr cf ~ fuff~ ~ ~ ~~ cnsc)s

~ btt ~~J- yen ~~ kJ Ik ~~rP d- ~ ~ ~~ ~ reJeNe ttJ ~ bull sets Mn~ F~ tk a fUgtA--~~ M -p~JcuA ~ -rJ oIeck IJk Us dolw ~ ~olJH~ ~_ ()JL5~ 1KJ we L~ bO ~ trhL ~~ ckIJmiddot A-ow~ iPv ~~ ftofM MuJ- Ij haJ ~ fJfL ~ leA ~I- ~ albwcd to tel- amp ~~~ ~ Iuvt ~~ 1wi)tM1~~Jl~~~ f~ ~ncl1 ~ Cerw1e s~ke J-~~ fJk stJo 0- ~ ~ ~ whue ~lr- ls ~ol bo CO He r~J ~D-~ ~ ~ twA OJ b4 sloek-~ art ~~O P~Z~) ~~ owl ~ hok upoundL ~ IJL ~ ~~) ~ ampv~ ttrcrl fOr riveA~ b(If9~ ~ o-k Us WU k tAd odNJuJ~ U ~~ WluU IJJk CL~ ~

I

~ (tJJ- -14 rY f ~m -f i7~ 0 7pWf) 01) ~Pfn ~~~rgtf ~ oS ~ts-

rn 10 ~ PlrOf~ 1srnj()~ -r1i ~ yen~NJ Of ~J0 S(l i~ ~11 J oj (m ~ f1zc ~ IlI ms

~ ~ r~ ~~~ ~ ~m~ tal -f ~~~ ~5Qgt s W~l~s ~ 7fFt l (rw1

lXf ~ ~ ~ bull 11t 09 ~ aq Jo 11f fVW1 ~ ~rp -wJ rw ~ w f fl~ gt101 ~ 0gt(0 II( FyenJ

rt f(ffig egtltg rray5 ~ (1~~~ r~middottJ ~~(t1 - WVJri5 ~ f) ~~ rlJnOlNLYO ~ ~ ~ ~ 1n5~ ~ ~ voI

S3A ~ Arft~J1j) ~ ~sJ~ ~~ ~ Of ro~s ~H~ 1~ ~~ ro nr~(l fJrvJ Jf1 ~ ~ 4f7lJ ~ ~1 ~qWIV tkOJ1 r () -ffI ~ 1 iffiGJaJ OJ

JOrp ~ ~s+ J- -roO J() XVd O~tT 600~ TC LOSTO tIO ~

141 015 01507 31 2009 14 20 FAX

MSampE 247s Intemationallnvestments 73100 Midtenn Page 12 of 12

QUlltlon 8 (20 points)

Please analyze with the three-panel diagram of the significant trade deficit reduction induced by the great fiscal deficit improvement You may coin a term twin surp1us phenomenon

Hint

The Real Equilibrium in an Open Economy

---~ (a) The Market for Loanable Funds (b) Net Foreign Investment

Real Interest

Real Interest

NFl

Net Foreign Investment Quantity of Loanable Funds real

rJA J L ~e exchange(0 Asfk~-~ rate

~ 0It ~(~ clVJlr EI = real Emiddot

i) OJJaV~) ~ fu ~

~~~ rIrir malk V- Q Aijt-

Rate r

S (saving) Rate

(0 r

D (I+NFI)

)

s I)

~ t~ ~ r D(NX)

o ~ (oIttj ita r6t f1A detfr - Quany ofDolI

~ Ib ~ 0

~ ftI ~J~ (e) The M f FgncufflIncy EhBll9

fUt~~~~

~ (J~ ~ amp0 ~~~cltgt~ ~ UiL~wshy~ ~i ~C) biL~~ MI ~~ QfJ

[AnMr to QUIIlIRO 820 polol81

Pleae anawer directly on the above three panel diagram reg whe 1 (euroAI UeJ~14 r~ DV~ S IIAIIJJ~ U S ~p~tt1 hi f)re

07 31 2009 1418 FAX ~ 0081015

MSampE 247s International Investments 73109 Midterm Page 7 of 12

Question 4 (20 PRint)

Please Indicate the reverting forces act upon point B on the following diagram if you find the current financial variables being at pOint e and away from the parity line

[ADIWt[ to Qytlon 4 20 point] ct- rt not rlgt tlSklershy

--------

~~ i- t~ sibeftshy

s

--7 See

_

07 31 2009 1419 FAX 141 009015

MSampE 247s Intemational Investments 73109 Midterm Page 8 of 12

autltlon 5 (20 pointsgt

Please analyze with the stock and flow model the Impact on US currency from the assumed great success of Apples new tablet known as touch-screen 10 ultimate netbook and iPhone hybrid which will be available before this Christmas in Europe Please also show the trajectory of exchange rate

[Answer to QVlation 5 20 pont81

(Olrak

OUif -

D

~t

tr -gt (j( ALshy

1l hfr~ ~ ~ fk fprk- k1IJ fM-11 ~ 6-h ~ rokkk fA Uk ~ MoM 60 sJf ~J ttJns ~~ ~-w t~ US ~ rIut wJi 1fJrJ ~ ~~~ s~tu 1ks f~ oPk lli ~6fXi 1AJJJpound ~ ~ ~~ fVU)ft ~ ~ ~ ~ ~~ ~ dfJWA ~ f1 i iJJJj ~ ~ Us J wlt lL lyen6wtjB yen =I Pittamp 80 _ Jjillaquo St~~~tre

-~ r

bull

1 rj3)C)

ffilyenshy~~~----------------~~

~ 1~ d

S If

5

l STO OTO ~

XVd 6T tT 600Z TC I LO

14]011101507 31 2009 1419 FAX

MSampE 247s International Investments 73109 Midterm Page 9 of 12

Outton t 120 point) Consider the following four different responses to the same news Item and try to match each response with a named asset model (eg monetarist model overshooting model etc) If none of the named asset models can explain a particular market response diagram (ie there is no appropriate model) state that there is no applicable model Which model have you seen depicting the reality beat after the Uquldlty Injection due to the 8ub-prlme mortgage criSis In 2oo7-8

News announced at t US money supply grew by $2 billion In the most recent week

Assuming that the consensus market forecast on money supply growth was $1 billion the realized money growth is a positive surprise

[AnaWl[ to QyUon 6 2Q polntsJ

Response (b) Response (a)

v v lltVAfA (IHlVltfMiW)

Nominal exchange rate I

($IFC)

I

US price level

$ Interest rate

US money supply

Nominal exchange rate

($IFC)

US price level

$ interest rate

US money supply

t1 t2 Time

Model Name WlK4 flU lI-vvC I Icentj I Model Name

INWAlU~~ SWt ~ it doIJv ~_ _ LLf ~f

~-7fHO ~~)

I--shy___~f~~1~~ Us P~CL

J~~

~

fv~ tIod ~ ~

m () - I c1 (AT j~ 1 +-h~ C r 15 S) nD-Jshy ft~r itshy

~ 01 21 01507 31 2009 1419 FAX

MSampE 2478 International Investments 713109 Midterm Page 10 of 12

Response (c)

Nominal exchange rate I

JSLECl

I US price level

$ Interest rate

US money supply

Model Name I~$ 4Jr~i(Jjte

--

-

Response (d)

Nominalexchange rate bull------

US price level

$ interest rate

US money supply

Model Name VVCfqtVoVv A

Time

rf~

oIuJ ~ ~ 1t1tWd ~ tkfJeri ~ iL- Mar h~ ~l 1rk ~ ~ ot J- Zltm gt~ ~ (JIM Soles r-~ 6o amp ~ ow- Ug frwd hovA WUf

~ rro l()idolJ 1hu kgtf to S~~ ~~ J4 tY1w rePtJue- (p Uk ewoJ (--~ ~ S~~ ~ ~~ Db fJk fa ~ 60 ticJ- ~b LwNgt (Jk ~ ereJiJf- ~ (J4- ~ ~ oV tk fJI~

6-tuJ- ~ W[1l k Ut~~ 0 U tk ~ tvd ~J ~I

-kf)~~~ ~ tWJ ~ f~Jer MIlL ~ ~ ~M Ll ()Jell ocQr

141 013 015 0731 2009 1420 FAX

MSampE 2478 International Investments 73109 Midterm Page 11 of 12

QUutlOD 7 (20 points) What are the three main Issues raised and answered in the Town Hall meeting with [andor Semiannual Monetary Policy Report by] Chair Ben Bemanke How does each of the three main issues affect the living standards and Investment opportunities (domestic and intemational) in the US What was the response of each issue from Chair Ben Bemanke and from you the potential future Chair of the Federal Reserve

rA08WJ to QybullbulltJgD 7 20 RolDtl

1 IAJrbIl4 W tuwe voJlt ~~J l~ uztj

t ~~It sl4 +cblkr 3 ~ n~

~ ~ ~ lsgtuu ~ were 1 o-k- ~t1tj 4 ok ~~ ~ tk ~ CtiSLS QtJ ~ ~~Ci 4- tIrL ~~Ivwk ~~ ~ ~r(le 2 ~ 1k eo~ ~f2w IIt )f aAcl Dh ~aJ- ()t1 4kr ~~ i 3 ~~ bkf OIl ~ ~ ao Ov rorJJr cf ~ fuff~ ~ ~ ~~ cnsc)s

~ btt ~~J- yen ~~ kJ Ik ~~rP d- ~ ~ ~~ ~ reJeNe ttJ ~ bull sets Mn~ F~ tk a fUgtA--~~ M -p~JcuA ~ -rJ oIeck IJk Us dolw ~ ~olJH~ ~_ ()JL5~ 1KJ we L~ bO ~ trhL ~~ ckIJmiddot A-ow~ iPv ~~ ftofM MuJ- Ij haJ ~ fJfL ~ leA ~I- ~ albwcd to tel- amp ~~~ ~ Iuvt ~~ 1wi)tM1~~Jl~~~ f~ ~ncl1 ~ Cerw1e s~ke J-~~ fJk stJo 0- ~ ~ ~ whue ~lr- ls ~ol bo CO He r~J ~D-~ ~ ~ twA OJ b4 sloek-~ art ~~O P~Z~) ~~ owl ~ hok upoundL ~ IJL ~ ~~) ~ ampv~ ttrcrl fOr riveA~ b(If9~ ~ o-k Us WU k tAd odNJuJ~ U ~~ WluU IJJk CL~ ~

I

~ (tJJ- -14 rY f ~m -f i7~ 0 7pWf) 01) ~Pfn ~~~rgtf ~ oS ~ts-

rn 10 ~ PlrOf~ 1srnj()~ -r1i ~ yen~NJ Of ~J0 S(l i~ ~11 J oj (m ~ f1zc ~ IlI ms

~ ~ r~ ~~~ ~ ~m~ tal -f ~~~ ~5Qgt s W~l~s ~ 7fFt l (rw1

lXf ~ ~ ~ bull 11t 09 ~ aq Jo 11f fVW1 ~ ~rp -wJ rw ~ w f fl~ gt101 ~ 0gt(0 II( FyenJ

rt f(ffig egtltg rray5 ~ (1~~~ r~middottJ ~~(t1 - WVJri5 ~ f) ~~ rlJnOlNLYO ~ ~ ~ ~ 1n5~ ~ ~ voI

S3A ~ Arft~J1j) ~ ~sJ~ ~~ ~ Of ro~s ~H~ 1~ ~~ ro nr~(l fJrvJ Jf1 ~ ~ 4f7lJ ~ ~1 ~qWIV tkOJ1 r () -ffI ~ 1 iffiGJaJ OJ

JOrp ~ ~s+ J- -roO J() XVd O~tT 600~ TC LOSTO tIO ~

141 015 01507 31 2009 14 20 FAX

MSampE 247s Intemationallnvestments 73100 Midtenn Page 12 of 12

QUlltlon 8 (20 points)

Please analyze with the three-panel diagram of the significant trade deficit reduction induced by the great fiscal deficit improvement You may coin a term twin surp1us phenomenon

Hint

The Real Equilibrium in an Open Economy

---~ (a) The Market for Loanable Funds (b) Net Foreign Investment

Real Interest

Real Interest

NFl

Net Foreign Investment Quantity of Loanable Funds real

rJA J L ~e exchange(0 Asfk~-~ rate

~ 0It ~(~ clVJlr EI = real Emiddot

i) OJJaV~) ~ fu ~

~~~ rIrir malk V- Q Aijt-

Rate r

S (saving) Rate

(0 r

D (I+NFI)

)

s I)

~ t~ ~ r D(NX)

o ~ (oIttj ita r6t f1A detfr - Quany ofDolI

~ Ib ~ 0

~ ftI ~J~ (e) The M f FgncufflIncy EhBll9

fUt~~~~

~ (J~ ~ amp0 ~~~cltgt~ ~ UiL~wshy~ ~i ~C) biL~~ MI ~~ QfJ

[AnMr to QUIIlIRO 820 polol81

Pleae anawer directly on the above three panel diagram reg whe 1 (euroAI UeJ~14 r~ DV~ S IIAIIJJ~ U S ~p~tt1 hi f)re

--------

~~ i- t~ sibeftshy

s

--7 See

_

07 31 2009 1419 FAX 141 009015

MSampE 247s Intemational Investments 73109 Midterm Page 8 of 12

autltlon 5 (20 pointsgt

Please analyze with the stock and flow model the Impact on US currency from the assumed great success of Apples new tablet known as touch-screen 10 ultimate netbook and iPhone hybrid which will be available before this Christmas in Europe Please also show the trajectory of exchange rate

[Answer to QVlation 5 20 pont81

(Olrak

OUif -

D

~t

tr -gt (j( ALshy

1l hfr~ ~ ~ fk fprk- k1IJ fM-11 ~ 6-h ~ rokkk fA Uk ~ MoM 60 sJf ~J ttJns ~~ ~-w t~ US ~ rIut wJi 1fJrJ ~ ~~~ s~tu 1ks f~ oPk lli ~6fXi 1AJJJpound ~ ~ ~~ fVU)ft ~ ~ ~ ~ ~~ ~ dfJWA ~ f1 i iJJJj ~ ~ Us J wlt lL lyen6wtjB yen =I Pittamp 80 _ Jjillaquo St~~~tre

-~ r

bull

1 rj3)C)

ffilyenshy~~~----------------~~

~ 1~ d

S If

5

l STO OTO ~

XVd 6T tT 600Z TC I LO

14]011101507 31 2009 1419 FAX

MSampE 247s International Investments 73109 Midterm Page 9 of 12

Outton t 120 point) Consider the following four different responses to the same news Item and try to match each response with a named asset model (eg monetarist model overshooting model etc) If none of the named asset models can explain a particular market response diagram (ie there is no appropriate model) state that there is no applicable model Which model have you seen depicting the reality beat after the Uquldlty Injection due to the 8ub-prlme mortgage criSis In 2oo7-8

News announced at t US money supply grew by $2 billion In the most recent week

Assuming that the consensus market forecast on money supply growth was $1 billion the realized money growth is a positive surprise

[AnaWl[ to QyUon 6 2Q polntsJ

Response (b) Response (a)

v v lltVAfA (IHlVltfMiW)

Nominal exchange rate I

($IFC)

I

US price level

$ Interest rate

US money supply

Nominal exchange rate

($IFC)

US price level

$ interest rate

US money supply

t1 t2 Time

Model Name WlK4 flU lI-vvC I Icentj I Model Name

INWAlU~~ SWt ~ it doIJv ~_ _ LLf ~f

~-7fHO ~~)

I--shy___~f~~1~~ Us P~CL

J~~

~

fv~ tIod ~ ~

m () - I c1 (AT j~ 1 +-h~ C r 15 S) nD-Jshy ft~r itshy

~ 01 21 01507 31 2009 1419 FAX

MSampE 2478 International Investments 713109 Midterm Page 10 of 12

Response (c)

Nominal exchange rate I

JSLECl

I US price level

$ Interest rate

US money supply

Model Name I~$ 4Jr~i(Jjte

--

-

Response (d)

Nominalexchange rate bull------

US price level

$ interest rate

US money supply

Model Name VVCfqtVoVv A

Time

rf~

oIuJ ~ ~ 1t1tWd ~ tkfJeri ~ iL- Mar h~ ~l 1rk ~ ~ ot J- Zltm gt~ ~ (JIM Soles r-~ 6o amp ~ ow- Ug frwd hovA WUf

~ rro l()idolJ 1hu kgtf to S~~ ~~ J4 tY1w rePtJue- (p Uk ewoJ (--~ ~ S~~ ~ ~~ Db fJk fa ~ 60 ticJ- ~b LwNgt (Jk ~ ereJiJf- ~ (J4- ~ ~ oV tk fJI~

6-tuJ- ~ W[1l k Ut~~ 0 U tk ~ tvd ~J ~I

-kf)~~~ ~ tWJ ~ f~Jer MIlL ~ ~ ~M Ll ()Jell ocQr

141 013 015 0731 2009 1420 FAX

MSampE 2478 International Investments 73109 Midterm Page 11 of 12

QUutlOD 7 (20 points) What are the three main Issues raised and answered in the Town Hall meeting with [andor Semiannual Monetary Policy Report by] Chair Ben Bemanke How does each of the three main issues affect the living standards and Investment opportunities (domestic and intemational) in the US What was the response of each issue from Chair Ben Bemanke and from you the potential future Chair of the Federal Reserve

rA08WJ to QybullbulltJgD 7 20 RolDtl

1 IAJrbIl4 W tuwe voJlt ~~J l~ uztj

t ~~It sl4 +cblkr 3 ~ n~

~ ~ ~ lsgtuu ~ were 1 o-k- ~t1tj 4 ok ~~ ~ tk ~ CtiSLS QtJ ~ ~~Ci 4- tIrL ~~Ivwk ~~ ~ ~r(le 2 ~ 1k eo~ ~f2w IIt )f aAcl Dh ~aJ- ()t1 4kr ~~ i 3 ~~ bkf OIl ~ ~ ao Ov rorJJr cf ~ fuff~ ~ ~ ~~ cnsc)s

~ btt ~~J- yen ~~ kJ Ik ~~rP d- ~ ~ ~~ ~ reJeNe ttJ ~ bull sets Mn~ F~ tk a fUgtA--~~ M -p~JcuA ~ -rJ oIeck IJk Us dolw ~ ~olJH~ ~_ ()JL5~ 1KJ we L~ bO ~ trhL ~~ ckIJmiddot A-ow~ iPv ~~ ftofM MuJ- Ij haJ ~ fJfL ~ leA ~I- ~ albwcd to tel- amp ~~~ ~ Iuvt ~~ 1wi)tM1~~Jl~~~ f~ ~ncl1 ~ Cerw1e s~ke J-~~ fJk stJo 0- ~ ~ ~ whue ~lr- ls ~ol bo CO He r~J ~D-~ ~ ~ twA OJ b4 sloek-~ art ~~O P~Z~) ~~ owl ~ hok upoundL ~ IJL ~ ~~) ~ ampv~ ttrcrl fOr riveA~ b(If9~ ~ o-k Us WU k tAd odNJuJ~ U ~~ WluU IJJk CL~ ~

I

~ (tJJ- -14 rY f ~m -f i7~ 0 7pWf) 01) ~Pfn ~~~rgtf ~ oS ~ts-

rn 10 ~ PlrOf~ 1srnj()~ -r1i ~ yen~NJ Of ~J0 S(l i~ ~11 J oj (m ~ f1zc ~ IlI ms

~ ~ r~ ~~~ ~ ~m~ tal -f ~~~ ~5Qgt s W~l~s ~ 7fFt l (rw1

lXf ~ ~ ~ bull 11t 09 ~ aq Jo 11f fVW1 ~ ~rp -wJ rw ~ w f fl~ gt101 ~ 0gt(0 II( FyenJ

rt f(ffig egtltg rray5 ~ (1~~~ r~middottJ ~~(t1 - WVJri5 ~ f) ~~ rlJnOlNLYO ~ ~ ~ ~ 1n5~ ~ ~ voI

S3A ~ Arft~J1j) ~ ~sJ~ ~~ ~ Of ro~s ~H~ 1~ ~~ ro nr~(l fJrvJ Jf1 ~ ~ 4f7lJ ~ ~1 ~qWIV tkOJ1 r () -ffI ~ 1 iffiGJaJ OJ

JOrp ~ ~s+ J- -roO J() XVd O~tT 600~ TC LOSTO tIO ~

141 015 01507 31 2009 14 20 FAX

MSampE 247s Intemationallnvestments 73100 Midtenn Page 12 of 12

QUlltlon 8 (20 points)

Please analyze with the three-panel diagram of the significant trade deficit reduction induced by the great fiscal deficit improvement You may coin a term twin surp1us phenomenon

Hint

The Real Equilibrium in an Open Economy

---~ (a) The Market for Loanable Funds (b) Net Foreign Investment

Real Interest

Real Interest

NFl

Net Foreign Investment Quantity of Loanable Funds real

rJA J L ~e exchange(0 Asfk~-~ rate

~ 0It ~(~ clVJlr EI = real Emiddot

i) OJJaV~) ~ fu ~

~~~ rIrir malk V- Q Aijt-

Rate r

S (saving) Rate

(0 r

D (I+NFI)

)

s I)

~ t~ ~ r D(NX)

o ~ (oIttj ita r6t f1A detfr - Quany ofDolI

~ Ib ~ 0

~ ftI ~J~ (e) The M f FgncufflIncy EhBll9

fUt~~~~

~ (J~ ~ amp0 ~~~cltgt~ ~ UiL~wshy~ ~i ~C) biL~~ MI ~~ QfJ

[AnMr to QUIIlIRO 820 polol81

Pleae anawer directly on the above three panel diagram reg whe 1 (euroAI UeJ~14 r~ DV~ S IIAIIJJ~ U S ~p~tt1 hi f)re

-~ r

bull

1 rj3)C)

ffilyenshy~~~----------------~~

~ 1~ d

S If

5

l STO OTO ~

XVd 6T tT 600Z TC I LO

14]011101507 31 2009 1419 FAX

MSampE 247s International Investments 73109 Midterm Page 9 of 12

Outton t 120 point) Consider the following four different responses to the same news Item and try to match each response with a named asset model (eg monetarist model overshooting model etc) If none of the named asset models can explain a particular market response diagram (ie there is no appropriate model) state that there is no applicable model Which model have you seen depicting the reality beat after the Uquldlty Injection due to the 8ub-prlme mortgage criSis In 2oo7-8

News announced at t US money supply grew by $2 billion In the most recent week

Assuming that the consensus market forecast on money supply growth was $1 billion the realized money growth is a positive surprise

[AnaWl[ to QyUon 6 2Q polntsJ

Response (b) Response (a)

v v lltVAfA (IHlVltfMiW)

Nominal exchange rate I

($IFC)

I

US price level

$ Interest rate

US money supply

Nominal exchange rate

($IFC)

US price level

$ interest rate

US money supply

t1 t2 Time

Model Name WlK4 flU lI-vvC I Icentj I Model Name

INWAlU~~ SWt ~ it doIJv ~_ _ LLf ~f

~-7fHO ~~)

I--shy___~f~~1~~ Us P~CL

J~~

~

fv~ tIod ~ ~

m () - I c1 (AT j~ 1 +-h~ C r 15 S) nD-Jshy ft~r itshy

~ 01 21 01507 31 2009 1419 FAX

MSampE 2478 International Investments 713109 Midterm Page 10 of 12

Response (c)

Nominal exchange rate I

JSLECl

I US price level

$ Interest rate

US money supply

Model Name I~$ 4Jr~i(Jjte

--

-

Response (d)

Nominalexchange rate bull------

US price level

$ interest rate

US money supply

Model Name VVCfqtVoVv A

Time

rf~

oIuJ ~ ~ 1t1tWd ~ tkfJeri ~ iL- Mar h~ ~l 1rk ~ ~ ot J- Zltm gt~ ~ (JIM Soles r-~ 6o amp ~ ow- Ug frwd hovA WUf

~ rro l()idolJ 1hu kgtf to S~~ ~~ J4 tY1w rePtJue- (p Uk ewoJ (--~ ~ S~~ ~ ~~ Db fJk fa ~ 60 ticJ- ~b LwNgt (Jk ~ ereJiJf- ~ (J4- ~ ~ oV tk fJI~

6-tuJ- ~ W[1l k Ut~~ 0 U tk ~ tvd ~J ~I

-kf)~~~ ~ tWJ ~ f~Jer MIlL ~ ~ ~M Ll ()Jell ocQr

141 013 015 0731 2009 1420 FAX

MSampE 2478 International Investments 73109 Midterm Page 11 of 12

QUutlOD 7 (20 points) What are the three main Issues raised and answered in the Town Hall meeting with [andor Semiannual Monetary Policy Report by] Chair Ben Bemanke How does each of the three main issues affect the living standards and Investment opportunities (domestic and intemational) in the US What was the response of each issue from Chair Ben Bemanke and from you the potential future Chair of the Federal Reserve

rA08WJ to QybullbulltJgD 7 20 RolDtl

1 IAJrbIl4 W tuwe voJlt ~~J l~ uztj

t ~~It sl4 +cblkr 3 ~ n~

~ ~ ~ lsgtuu ~ were 1 o-k- ~t1tj 4 ok ~~ ~ tk ~ CtiSLS QtJ ~ ~~Ci 4- tIrL ~~Ivwk ~~ ~ ~r(le 2 ~ 1k eo~ ~f2w IIt )f aAcl Dh ~aJ- ()t1 4kr ~~ i 3 ~~ bkf OIl ~ ~ ao Ov rorJJr cf ~ fuff~ ~ ~ ~~ cnsc)s

~ btt ~~J- yen ~~ kJ Ik ~~rP d- ~ ~ ~~ ~ reJeNe ttJ ~ bull sets Mn~ F~ tk a fUgtA--~~ M -p~JcuA ~ -rJ oIeck IJk Us dolw ~ ~olJH~ ~_ ()JL5~ 1KJ we L~ bO ~ trhL ~~ ckIJmiddot A-ow~ iPv ~~ ftofM MuJ- Ij haJ ~ fJfL ~ leA ~I- ~ albwcd to tel- amp ~~~ ~ Iuvt ~~ 1wi)tM1~~Jl~~~ f~ ~ncl1 ~ Cerw1e s~ke J-~~ fJk stJo 0- ~ ~ ~ whue ~lr- ls ~ol bo CO He r~J ~D-~ ~ ~ twA OJ b4 sloek-~ art ~~O P~Z~) ~~ owl ~ hok upoundL ~ IJL ~ ~~) ~ ampv~ ttrcrl fOr riveA~ b(If9~ ~ o-k Us WU k tAd odNJuJ~ U ~~ WluU IJJk CL~ ~

I

~ (tJJ- -14 rY f ~m -f i7~ 0 7pWf) 01) ~Pfn ~~~rgtf ~ oS ~ts-

rn 10 ~ PlrOf~ 1srnj()~ -r1i ~ yen~NJ Of ~J0 S(l i~ ~11 J oj (m ~ f1zc ~ IlI ms

~ ~ r~ ~~~ ~ ~m~ tal -f ~~~ ~5Qgt s W~l~s ~ 7fFt l (rw1

lXf ~ ~ ~ bull 11t 09 ~ aq Jo 11f fVW1 ~ ~rp -wJ rw ~ w f fl~ gt101 ~ 0gt(0 II( FyenJ

rt f(ffig egtltg rray5 ~ (1~~~ r~middottJ ~~(t1 - WVJri5 ~ f) ~~ rlJnOlNLYO ~ ~ ~ ~ 1n5~ ~ ~ voI

S3A ~ Arft~J1j) ~ ~sJ~ ~~ ~ Of ro~s ~H~ 1~ ~~ ro nr~(l fJrvJ Jf1 ~ ~ 4f7lJ ~ ~1 ~qWIV tkOJ1 r () -ffI ~ 1 iffiGJaJ OJ

JOrp ~ ~s+ J- -roO J() XVd O~tT 600~ TC LOSTO tIO ~

141 015 01507 31 2009 14 20 FAX

MSampE 247s Intemationallnvestments 73100 Midtenn Page 12 of 12

QUlltlon 8 (20 points)

Please analyze with the three-panel diagram of the significant trade deficit reduction induced by the great fiscal deficit improvement You may coin a term twin surp1us phenomenon

Hint

The Real Equilibrium in an Open Economy

---~ (a) The Market for Loanable Funds (b) Net Foreign Investment

Real Interest

Real Interest

NFl

Net Foreign Investment Quantity of Loanable Funds real

rJA J L ~e exchange(0 Asfk~-~ rate

~ 0It ~(~ clVJlr EI = real Emiddot

i) OJJaV~) ~ fu ~

~~~ rIrir malk V- Q Aijt-

Rate r

S (saving) Rate

(0 r

D (I+NFI)

)

s I)

~ t~ ~ r D(NX)

o ~ (oIttj ita r6t f1A detfr - Quany ofDolI

~ Ib ~ 0

~ ftI ~J~ (e) The M f FgncufflIncy EhBll9

fUt~~~~

~ (J~ ~ amp0 ~~~cltgt~ ~ UiL~wshy~ ~i ~C) biL~~ MI ~~ QfJ

[AnMr to QUIIlIRO 820 polol81

Pleae anawer directly on the above three panel diagram reg whe 1 (euroAI UeJ~14 r~ DV~ S IIAIIJJ~ U S ~p~tt1 hi f)re

14]011101507 31 2009 1419 FAX

MSampE 247s International Investments 73109 Midterm Page 9 of 12

Outton t 120 point) Consider the following four different responses to the same news Item and try to match each response with a named asset model (eg monetarist model overshooting model etc) If none of the named asset models can explain a particular market response diagram (ie there is no appropriate model) state that there is no applicable model Which model have you seen depicting the reality beat after the Uquldlty Injection due to the 8ub-prlme mortgage criSis In 2oo7-8

News announced at t US money supply grew by $2 billion In the most recent week

Assuming that the consensus market forecast on money supply growth was $1 billion the realized money growth is a positive surprise

[AnaWl[ to QyUon 6 2Q polntsJ

Response (b) Response (a)

v v lltVAfA (IHlVltfMiW)

Nominal exchange rate I

($IFC)

I

US price level

$ Interest rate

US money supply

Nominal exchange rate

($IFC)

US price level

$ interest rate

US money supply

t1 t2 Time

Model Name WlK4 flU lI-vvC I Icentj I Model Name

INWAlU~~ SWt ~ it doIJv ~_ _ LLf ~f

~-7fHO ~~)

I--shy___~f~~1~~ Us P~CL

J~~

~

fv~ tIod ~ ~

m () - I c1 (AT j~ 1 +-h~ C r 15 S) nD-Jshy ft~r itshy

~ 01 21 01507 31 2009 1419 FAX

MSampE 2478 International Investments 713109 Midterm Page 10 of 12

Response (c)

Nominal exchange rate I

JSLECl

I US price level

$ Interest rate

US money supply

Model Name I~$ 4Jr~i(Jjte

--

-

Response (d)

Nominalexchange rate bull------

US price level

$ interest rate

US money supply

Model Name VVCfqtVoVv A

Time

rf~

oIuJ ~ ~ 1t1tWd ~ tkfJeri ~ iL- Mar h~ ~l 1rk ~ ~ ot J- Zltm gt~ ~ (JIM Soles r-~ 6o amp ~ ow- Ug frwd hovA WUf

~ rro l()idolJ 1hu kgtf to S~~ ~~ J4 tY1w rePtJue- (p Uk ewoJ (--~ ~ S~~ ~ ~~ Db fJk fa ~ 60 ticJ- ~b LwNgt (Jk ~ ereJiJf- ~ (J4- ~ ~ oV tk fJI~

6-tuJ- ~ W[1l k Ut~~ 0 U tk ~ tvd ~J ~I

-kf)~~~ ~ tWJ ~ f~Jer MIlL ~ ~ ~M Ll ()Jell ocQr

141 013 015 0731 2009 1420 FAX

MSampE 2478 International Investments 73109 Midterm Page 11 of 12

QUutlOD 7 (20 points) What are the three main Issues raised and answered in the Town Hall meeting with [andor Semiannual Monetary Policy Report by] Chair Ben Bemanke How does each of the three main issues affect the living standards and Investment opportunities (domestic and intemational) in the US What was the response of each issue from Chair Ben Bemanke and from you the potential future Chair of the Federal Reserve

rA08WJ to QybullbulltJgD 7 20 RolDtl

1 IAJrbIl4 W tuwe voJlt ~~J l~ uztj

t ~~It sl4 +cblkr 3 ~ n~

~ ~ ~ lsgtuu ~ were 1 o-k- ~t1tj 4 ok ~~ ~ tk ~ CtiSLS QtJ ~ ~~Ci 4- tIrL ~~Ivwk ~~ ~ ~r(le 2 ~ 1k eo~ ~f2w IIt )f aAcl Dh ~aJ- ()t1 4kr ~~ i 3 ~~ bkf OIl ~ ~ ao Ov rorJJr cf ~ fuff~ ~ ~ ~~ cnsc)s

~ btt ~~J- yen ~~ kJ Ik ~~rP d- ~ ~ ~~ ~ reJeNe ttJ ~ bull sets Mn~ F~ tk a fUgtA--~~ M -p~JcuA ~ -rJ oIeck IJk Us dolw ~ ~olJH~ ~_ ()JL5~ 1KJ we L~ bO ~ trhL ~~ ckIJmiddot A-ow~ iPv ~~ ftofM MuJ- Ij haJ ~ fJfL ~ leA ~I- ~ albwcd to tel- amp ~~~ ~ Iuvt ~~ 1wi)tM1~~Jl~~~ f~ ~ncl1 ~ Cerw1e s~ke J-~~ fJk stJo 0- ~ ~ ~ whue ~lr- ls ~ol bo CO He r~J ~D-~ ~ ~ twA OJ b4 sloek-~ art ~~O P~Z~) ~~ owl ~ hok upoundL ~ IJL ~ ~~) ~ ampv~ ttrcrl fOr riveA~ b(If9~ ~ o-k Us WU k tAd odNJuJ~ U ~~ WluU IJJk CL~ ~

I

~ (tJJ- -14 rY f ~m -f i7~ 0 7pWf) 01) ~Pfn ~~~rgtf ~ oS ~ts-

rn 10 ~ PlrOf~ 1srnj()~ -r1i ~ yen~NJ Of ~J0 S(l i~ ~11 J oj (m ~ f1zc ~ IlI ms

~ ~ r~ ~~~ ~ ~m~ tal -f ~~~ ~5Qgt s W~l~s ~ 7fFt l (rw1

lXf ~ ~ ~ bull 11t 09 ~ aq Jo 11f fVW1 ~ ~rp -wJ rw ~ w f fl~ gt101 ~ 0gt(0 II( FyenJ

rt f(ffig egtltg rray5 ~ (1~~~ r~middottJ ~~(t1 - WVJri5 ~ f) ~~ rlJnOlNLYO ~ ~ ~ ~ 1n5~ ~ ~ voI

S3A ~ Arft~J1j) ~ ~sJ~ ~~ ~ Of ro~s ~H~ 1~ ~~ ro nr~(l fJrvJ Jf1 ~ ~ 4f7lJ ~ ~1 ~qWIV tkOJ1 r () -ffI ~ 1 iffiGJaJ OJ

JOrp ~ ~s+ J- -roO J() XVd O~tT 600~ TC LOSTO tIO ~

141 015 01507 31 2009 14 20 FAX

MSampE 247s Intemationallnvestments 73100 Midtenn Page 12 of 12

QUlltlon 8 (20 points)

Please analyze with the three-panel diagram of the significant trade deficit reduction induced by the great fiscal deficit improvement You may coin a term twin surp1us phenomenon

Hint

The Real Equilibrium in an Open Economy

---~ (a) The Market for Loanable Funds (b) Net Foreign Investment

Real Interest

Real Interest

NFl

Net Foreign Investment Quantity of Loanable Funds real

rJA J L ~e exchange(0 Asfk~-~ rate

~ 0It ~(~ clVJlr EI = real Emiddot

i) OJJaV~) ~ fu ~

~~~ rIrir malk V- Q Aijt-

Rate r

S (saving) Rate

(0 r

D (I+NFI)

)

s I)

~ t~ ~ r D(NX)

o ~ (oIttj ita r6t f1A detfr - Quany ofDolI

~ Ib ~ 0

~ ftI ~J~ (e) The M f FgncufflIncy EhBll9

fUt~~~~

~ (J~ ~ amp0 ~~~cltgt~ ~ UiL~wshy~ ~i ~C) biL~~ MI ~~ QfJ

[AnMr to QUIIlIRO 820 polol81

Pleae anawer directly on the above three panel diagram reg whe 1 (euroAI UeJ~14 r~ DV~ S IIAIIJJ~ U S ~p~tt1 hi f)re

~ 01 21 01507 31 2009 1419 FAX

MSampE 2478 International Investments 713109 Midterm Page 10 of 12

Response (c)

Nominal exchange rate I

JSLECl

I US price level

$ Interest rate

US money supply

Model Name I~$ 4Jr~i(Jjte

--

-

Response (d)

Nominalexchange rate bull------

US price level

$ interest rate

US money supply

Model Name VVCfqtVoVv A

Time

rf~

oIuJ ~ ~ 1t1tWd ~ tkfJeri ~ iL- Mar h~ ~l 1rk ~ ~ ot J- Zltm gt~ ~ (JIM Soles r-~ 6o amp ~ ow- Ug frwd hovA WUf

~ rro l()idolJ 1hu kgtf to S~~ ~~ J4 tY1w rePtJue- (p Uk ewoJ (--~ ~ S~~ ~ ~~ Db fJk fa ~ 60 ticJ- ~b LwNgt (Jk ~ ereJiJf- ~ (J4- ~ ~ oV tk fJI~

6-tuJ- ~ W[1l k Ut~~ 0 U tk ~ tvd ~J ~I

-kf)~~~ ~ tWJ ~ f~Jer MIlL ~ ~ ~M Ll ()Jell ocQr

141 013 015 0731 2009 1420 FAX

MSampE 2478 International Investments 73109 Midterm Page 11 of 12

QUutlOD 7 (20 points) What are the three main Issues raised and answered in the Town Hall meeting with [andor Semiannual Monetary Policy Report by] Chair Ben Bemanke How does each of the three main issues affect the living standards and Investment opportunities (domestic and intemational) in the US What was the response of each issue from Chair Ben Bemanke and from you the potential future Chair of the Federal Reserve

rA08WJ to QybullbulltJgD 7 20 RolDtl

1 IAJrbIl4 W tuwe voJlt ~~J l~ uztj

t ~~It sl4 +cblkr 3 ~ n~

~ ~ ~ lsgtuu ~ were 1 o-k- ~t1tj 4 ok ~~ ~ tk ~ CtiSLS QtJ ~ ~~Ci 4- tIrL ~~Ivwk ~~ ~ ~r(le 2 ~ 1k eo~ ~f2w IIt )f aAcl Dh ~aJ- ()t1 4kr ~~ i 3 ~~ bkf OIl ~ ~ ao Ov rorJJr cf ~ fuff~ ~ ~ ~~ cnsc)s

~ btt ~~J- yen ~~ kJ Ik ~~rP d- ~ ~ ~~ ~ reJeNe ttJ ~ bull sets Mn~ F~ tk a fUgtA--~~ M -p~JcuA ~ -rJ oIeck IJk Us dolw ~ ~olJH~ ~_ ()JL5~ 1KJ we L~ bO ~ trhL ~~ ckIJmiddot A-ow~ iPv ~~ ftofM MuJ- Ij haJ ~ fJfL ~ leA ~I- ~ albwcd to tel- amp ~~~ ~ Iuvt ~~ 1wi)tM1~~Jl~~~ f~ ~ncl1 ~ Cerw1e s~ke J-~~ fJk stJo 0- ~ ~ ~ whue ~lr- ls ~ol bo CO He r~J ~D-~ ~ ~ twA OJ b4 sloek-~ art ~~O P~Z~) ~~ owl ~ hok upoundL ~ IJL ~ ~~) ~ ampv~ ttrcrl fOr riveA~ b(If9~ ~ o-k Us WU k tAd odNJuJ~ U ~~ WluU IJJk CL~ ~

I

~ (tJJ- -14 rY f ~m -f i7~ 0 7pWf) 01) ~Pfn ~~~rgtf ~ oS ~ts-

rn 10 ~ PlrOf~ 1srnj()~ -r1i ~ yen~NJ Of ~J0 S(l i~ ~11 J oj (m ~ f1zc ~ IlI ms

~ ~ r~ ~~~ ~ ~m~ tal -f ~~~ ~5Qgt s W~l~s ~ 7fFt l (rw1

lXf ~ ~ ~ bull 11t 09 ~ aq Jo 11f fVW1 ~ ~rp -wJ rw ~ w f fl~ gt101 ~ 0gt(0 II( FyenJ

rt f(ffig egtltg rray5 ~ (1~~~ r~middottJ ~~(t1 - WVJri5 ~ f) ~~ rlJnOlNLYO ~ ~ ~ ~ 1n5~ ~ ~ voI

S3A ~ Arft~J1j) ~ ~sJ~ ~~ ~ Of ro~s ~H~ 1~ ~~ ro nr~(l fJrvJ Jf1 ~ ~ 4f7lJ ~ ~1 ~qWIV tkOJ1 r () -ffI ~ 1 iffiGJaJ OJ

JOrp ~ ~s+ J- -roO J() XVd O~tT 600~ TC LOSTO tIO ~

141 015 01507 31 2009 14 20 FAX

MSampE 247s Intemationallnvestments 73100 Midtenn Page 12 of 12

QUlltlon 8 (20 points)

Please analyze with the three-panel diagram of the significant trade deficit reduction induced by the great fiscal deficit improvement You may coin a term twin surp1us phenomenon

Hint

The Real Equilibrium in an Open Economy

---~ (a) The Market for Loanable Funds (b) Net Foreign Investment

Real Interest

Real Interest

NFl

Net Foreign Investment Quantity of Loanable Funds real

rJA J L ~e exchange(0 Asfk~-~ rate

~ 0It ~(~ clVJlr EI = real Emiddot

i) OJJaV~) ~ fu ~

~~~ rIrir malk V- Q Aijt-

Rate r

S (saving) Rate

(0 r

D (I+NFI)

)

s I)

~ t~ ~ r D(NX)

o ~ (oIttj ita r6t f1A detfr - Quany ofDolI

~ Ib ~ 0

~ ftI ~J~ (e) The M f FgncufflIncy EhBll9

fUt~~~~

~ (J~ ~ amp0 ~~~cltgt~ ~ UiL~wshy~ ~i ~C) biL~~ MI ~~ QfJ

[AnMr to QUIIlIRO 820 polol81

Pleae anawer directly on the above three panel diagram reg whe 1 (euroAI UeJ~14 r~ DV~ S IIAIIJJ~ U S ~p~tt1 hi f)re

141 013 015 0731 2009 1420 FAX

MSampE 2478 International Investments 73109 Midterm Page 11 of 12

QUutlOD 7 (20 points) What are the three main Issues raised and answered in the Town Hall meeting with [andor Semiannual Monetary Policy Report by] Chair Ben Bemanke How does each of the three main issues affect the living standards and Investment opportunities (domestic and intemational) in the US What was the response of each issue from Chair Ben Bemanke and from you the potential future Chair of the Federal Reserve

rA08WJ to QybullbulltJgD 7 20 RolDtl

1 IAJrbIl4 W tuwe voJlt ~~J l~ uztj

t ~~It sl4 +cblkr 3 ~ n~

~ ~ ~ lsgtuu ~ were 1 o-k- ~t1tj 4 ok ~~ ~ tk ~ CtiSLS QtJ ~ ~~Ci 4- tIrL ~~Ivwk ~~ ~ ~r(le 2 ~ 1k eo~ ~f2w IIt )f aAcl Dh ~aJ- ()t1 4kr ~~ i 3 ~~ bkf OIl ~ ~ ao Ov rorJJr cf ~ fuff~ ~ ~ ~~ cnsc)s

~ btt ~~J- yen ~~ kJ Ik ~~rP d- ~ ~ ~~ ~ reJeNe ttJ ~ bull sets Mn~ F~ tk a fUgtA--~~ M -p~JcuA ~ -rJ oIeck IJk Us dolw ~ ~olJH~ ~_ ()JL5~ 1KJ we L~ bO ~ trhL ~~ ckIJmiddot A-ow~ iPv ~~ ftofM MuJ- Ij haJ ~ fJfL ~ leA ~I- ~ albwcd to tel- amp ~~~ ~ Iuvt ~~ 1wi)tM1~~Jl~~~ f~ ~ncl1 ~ Cerw1e s~ke J-~~ fJk stJo 0- ~ ~ ~ whue ~lr- ls ~ol bo CO He r~J ~D-~ ~ ~ twA OJ b4 sloek-~ art ~~O P~Z~) ~~ owl ~ hok upoundL ~ IJL ~ ~~) ~ ampv~ ttrcrl fOr riveA~ b(If9~ ~ o-k Us WU k tAd odNJuJ~ U ~~ WluU IJJk CL~ ~

I

~ (tJJ- -14 rY f ~m -f i7~ 0 7pWf) 01) ~Pfn ~~~rgtf ~ oS ~ts-

rn 10 ~ PlrOf~ 1srnj()~ -r1i ~ yen~NJ Of ~J0 S(l i~ ~11 J oj (m ~ f1zc ~ IlI ms

~ ~ r~ ~~~ ~ ~m~ tal -f ~~~ ~5Qgt s W~l~s ~ 7fFt l (rw1

lXf ~ ~ ~ bull 11t 09 ~ aq Jo 11f fVW1 ~ ~rp -wJ rw ~ w f fl~ gt101 ~ 0gt(0 II( FyenJ

rt f(ffig egtltg rray5 ~ (1~~~ r~middottJ ~~(t1 - WVJri5 ~ f) ~~ rlJnOlNLYO ~ ~ ~ ~ 1n5~ ~ ~ voI

S3A ~ Arft~J1j) ~ ~sJ~ ~~ ~ Of ro~s ~H~ 1~ ~~ ro nr~(l fJrvJ Jf1 ~ ~ 4f7lJ ~ ~1 ~qWIV tkOJ1 r () -ffI ~ 1 iffiGJaJ OJ

JOrp ~ ~s+ J- -roO J() XVd O~tT 600~ TC LOSTO tIO ~

141 015 01507 31 2009 14 20 FAX

MSampE 247s Intemationallnvestments 73100 Midtenn Page 12 of 12

QUlltlon 8 (20 points)

Please analyze with the three-panel diagram of the significant trade deficit reduction induced by the great fiscal deficit improvement You may coin a term twin surp1us phenomenon

Hint

The Real Equilibrium in an Open Economy

---~ (a) The Market for Loanable Funds (b) Net Foreign Investment

Real Interest

Real Interest

NFl

Net Foreign Investment Quantity of Loanable Funds real

rJA J L ~e exchange(0 Asfk~-~ rate

~ 0It ~(~ clVJlr EI = real Emiddot

i) OJJaV~) ~ fu ~

~~~ rIrir malk V- Q Aijt-

Rate r

S (saving) Rate

(0 r

D (I+NFI)

)

s I)

~ t~ ~ r D(NX)

o ~ (oIttj ita r6t f1A detfr - Quany ofDolI

~ Ib ~ 0

~ ftI ~J~ (e) The M f FgncufflIncy EhBll9

fUt~~~~

~ (J~ ~ amp0 ~~~cltgt~ ~ UiL~wshy~ ~i ~C) biL~~ MI ~~ QfJ

[AnMr to QUIIlIRO 820 polol81

Pleae anawer directly on the above three panel diagram reg whe 1 (euroAI UeJ~14 r~ DV~ S IIAIIJJ~ U S ~p~tt1 hi f)re

~ (tJJ- -14 rY f ~m -f i7~ 0 7pWf) 01) ~Pfn ~~~rgtf ~ oS ~ts-

rn 10 ~ PlrOf~ 1srnj()~ -r1i ~ yen~NJ Of ~J0 S(l i~ ~11 J oj (m ~ f1zc ~ IlI ms

~ ~ r~ ~~~ ~ ~m~ tal -f ~~~ ~5Qgt s W~l~s ~ 7fFt l (rw1

lXf ~ ~ ~ bull 11t 09 ~ aq Jo 11f fVW1 ~ ~rp -wJ rw ~ w f fl~ gt101 ~ 0gt(0 II( FyenJ

rt f(ffig egtltg rray5 ~ (1~~~ r~middottJ ~~(t1 - WVJri5 ~ f) ~~ rlJnOlNLYO ~ ~ ~ ~ 1n5~ ~ ~ voI

S3A ~ Arft~J1j) ~ ~sJ~ ~~ ~ Of ro~s ~H~ 1~ ~~ ro nr~(l fJrvJ Jf1 ~ ~ 4f7lJ ~ ~1 ~qWIV tkOJ1 r () -ffI ~ 1 iffiGJaJ OJ

JOrp ~ ~s+ J- -roO J() XVd O~tT 600~ TC LOSTO tIO ~

141 015 01507 31 2009 14 20 FAX

MSampE 247s Intemationallnvestments 73100 Midtenn Page 12 of 12

QUlltlon 8 (20 points)

Please analyze with the three-panel diagram of the significant trade deficit reduction induced by the great fiscal deficit improvement You may coin a term twin surp1us phenomenon

Hint

The Real Equilibrium in an Open Economy

---~ (a) The Market for Loanable Funds (b) Net Foreign Investment

Real Interest

Real Interest

NFl

Net Foreign Investment Quantity of Loanable Funds real

rJA J L ~e exchange(0 Asfk~-~ rate

~ 0It ~(~ clVJlr EI = real Emiddot

i) OJJaV~) ~ fu ~

~~~ rIrir malk V- Q Aijt-

Rate r

S (saving) Rate

(0 r

D (I+NFI)

)

s I)

~ t~ ~ r D(NX)

o ~ (oIttj ita r6t f1A detfr - Quany ofDolI

~ Ib ~ 0

~ ftI ~J~ (e) The M f FgncufflIncy EhBll9

fUt~~~~

~ (J~ ~ amp0 ~~~cltgt~ ~ UiL~wshy~ ~i ~C) biL~~ MI ~~ QfJ

[AnMr to QUIIlIRO 820 polol81

Pleae anawer directly on the above three panel diagram reg whe 1 (euroAI UeJ~14 r~ DV~ S IIAIIJJ~ U S ~p~tt1 hi f)re

141 015 01507 31 2009 14 20 FAX

MSampE 247s Intemationallnvestments 73100 Midtenn Page 12 of 12

QUlltlon 8 (20 points)

Please analyze with the three-panel diagram of the significant trade deficit reduction induced by the great fiscal deficit improvement You may coin a term twin surp1us phenomenon

Hint

The Real Equilibrium in an Open Economy

---~ (a) The Market for Loanable Funds (b) Net Foreign Investment

Real Interest

Real Interest

NFl

Net Foreign Investment Quantity of Loanable Funds real

rJA J L ~e exchange(0 Asfk~-~ rate

~ 0It ~(~ clVJlr EI = real Emiddot

i) OJJaV~) ~ fu ~

~~~ rIrir malk V- Q Aijt-

Rate r

S (saving) Rate

(0 r

D (I+NFI)

)

s I)

~ t~ ~ r D(NX)

o ~ (oIttj ita r6t f1A detfr - Quany ofDolI

~ Ib ~ 0

~ ftI ~J~ (e) The M f FgncufflIncy EhBll9

fUt~~~~

~ (J~ ~ amp0 ~~~cltgt~ ~ UiL~wshy~ ~i ~C) biL~~ MI ~~ QfJ

[AnMr to QUIIlIRO 820 polol81

Pleae anawer directly on the above three panel diagram reg whe 1 (euroAI UeJ~14 r~ DV~ S IIAIIJJ~ U S ~p~tt1 hi f)re