Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 31, Problem 4PA
Subpart (a):
To determine
Effect of US net capital outflow.
Subpart (b):
To determine
Effect of US net capital outflow.
Subpart (c):
To determine
Effect of US net capital outflow.
Subpart (d):
To determine
Effect of US net capital outflow.
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Match the following international transactions to the correct type of foreign investment by choosing from the drop
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A US investment company buys Eurobonds issued by the Turkish Treasury
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Gaming company Zynga acquires Istanbul-based Peak Games
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İşbank borrows € 100 million from European Investment Bank, a bank owned by
Foreign Portfolio Investment
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Teknosa imports Samsung smartphones from Korea.
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Complete the following table by indicating the effect each of the following transactions has on U.S. net capital outflow and whether it involves direct
investment or portfolio investment.
Transaction
A Vanguard mutual fund sells its Toyota stock to a German investor. (Note:
Assume the German investor pays in U.S. dollars.)
Samsung sells stock to the General Electric pension fund.
Sony expands its corporate office in New York.
An American cellular phone company establishes an office in the Czech Republic.
Effect on Net Capital
Outflow
Decrease
Increase
Decrease
Increase
Type of Investment
Involved
Portfolio investment
Portfolio investment
Direct investment
Direct investment
An American garment company establishes an office in the Slowakische Republic.
How would the transaction affect U.S Net capital outflow? Does the transaction affect
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Chapter 31 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
Knowledge Booster
Similar questions
- a) Would each of the following transactions be included in net exports or net capital outflow? Be sure to say whether it would represent an increase or decrease in that variable. i) An Indian buys a Samsung TV ii) An Indian buys a share of sony stock iii) The sony pension fund buys a bond from the Indian government iv) A worker at a Toyota plant in Japan buys some Nagpur oranges from an Indian farmerarrow_forwardThe forward rate of exchange is 2 , the spot rate of exchange is 1.75. The US has a bond of 9% interest and Canada has a bond for 5% interest. What is the amount you can collect in US dollars for the Canada bond on an investment of $10,000? $10,937.50 and the Canadian investment is better than the US investment $10,937.50 and the Canadian investment is worse than the US investment $10,900 and the Canadian investment is better than the US investment $10,900 and the Canadian investment is worse than the US investmentarrow_forwardAssume that you are a senior manager in a U.S. automobile company considering investing in production facilities in China, Russia or Germany. These facilities will serve the local market demand. Evaluate the benefits, costs, and risks associated with doing business in each nation. Which country seems to be the most attractive target for foreign direct investment? Why?arrow_forward
- How would each item affect the US international investment position? Just write “increase” or “decrease” or “no effect.” Swiss bank UBS buys shares on the US stock exchange. Swedish firm IKEA builds several new stores in the US. US mutual fund Fidelity sells most of its holdings of Chinese stock to buy US stock instead.arrow_forwardBecause of the relationship between net capital outflow and net exports, the level of net capital outflow at the equilibrium real interest rate implies that the economy is experiencing (Balanced trade/ a trade deficit/ a trade surplus) Now, suppose the government is experiencing a budget deficit. This means that ( National saving will increase/ national saving will decrease/ Domestic investment will increase / domestic investment will decrease) which leads to ( an increase in the supply of / a decrease in the supply of / an increase in the demand for/ a decrease in the demand for) loanable funds. After the budget deficit occurs, suppose the new equilibrium real interest rate is 6%. The following graph shows the demand curve in the foreign-currency exchange market. Use the green line (triangle symbol) to show the supply curve in this market before the budget deficit. Then use the purple line (diamond symbol) to show the supply curve after the budget deficit. Summarize the…arrow_forwardIf the economy enters a recessionary gap, then incomes in the economy decrease, which reduce income tax revenues earned by the government. When the economy enters a recession, unemployment compensation increases due to an increase in jobless claims. In other words, the government budget deficit increases. Begin with the open economy financial market in equilibrium. What will happen to the U.S. savings and net capital inflow function if the U.S. budget deficit increases? What will to the investment function if the U.S. budget deficit increases? What will happen to the real rate of interest if the U.S. budget deficit increases? What will happen to the quantity saved/invested if the U.S. budget deficit increases? Given the change in the level of savings, what would happen to the level of consumption?arrow_forward
- Suppose Canada sells chocolate to the United States. Which of the following correctly identifies the effects of this transaction? U.S. net exports increase, and U.S. net capital outflow increases. U.S. net exports increase, and U.S. net capital outflow decreases. U.S. net exports decrease, and U.S. net capital outflow increases. U.S. net exports decrease, and U.S. net capital outflow decreases.arrow_forwardWhich of the following does the international investment position consider? The distribution of a nation's assets abroad at the end of the year The total amount of a nation's assets abroad at the end of the year The foreign assets in the nation at the end of the year All of the above 11. A) B) C) D) Answer: 12. If the exchange rate between Euro and US$ is $2.32/€ and the exchange rate between Euro and Swiss Franc is SF2.21/€ then what is the exchange rate between US$ and SF? A) $.626/SF B) $.92/SF C) $1.05/SF D) $1.6/SF Answer:arrow_forwardQ9. Suppose that Malaysians decide to increase their saving. a) If the elasticity of Malaysian net capital outflow with respect to the real interest rate is very high, will this increase in private saving have a large or small effect on Malaysian domestic investment? b) If the elasticity of Malaysian exports with respect the real exchange rate is very low, will this increase in private saving have a large or small effect on the Malaysian real exchange rate?arrow_forward
- I am a bit confused on how to identify whether the problems are decreasing/increasing in Net Exports and Net Capital Flowarrow_forwardFor Turkey, would each of the following transactions affect net exports or net capital outflow or both? In addition, would the same transactions represent an increase or a decrease in that variable? For each transaction, choose the correct answer from the drop down menu: Al Kharafi family from Kuwait buys a house in Trabzon. Choose. Türk Telekom buys network equipment from Ericsson, a Choose. firm in Sweden. Increase Net Exports, Decrease Net Capital Outflow Katya and Igor Oblomov from Moscow spend their Decrease Net Exports, Decrease Net Capital Outflow vacation in Antalya. Decrease Net Exports, Increase Net Capital Outflow Ford Otosan sells Transit vans to Germany. Increase Net Capital Outflow Arçelik buys Hitachi's Asian business for $300 million. Decrease Net Capital Outflow Increase Net Exports, Increase Net Capital Outflowarrow_forwardPlease provide step-by-step answers with an explanationarrow_forward
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