The External Sector

Question 1

Inter-temporal Transactions

Answer 1

How much to lend/borrow between the world and us

Question 2

Intra-temporal Transactions

Answer 2

Where to buy/produce between the world and us

Question 3

International trade increases ..

Answer 3

Living standards

Question 4

Heckler-Ohlin states

Answer 4

Countries with comparative advantage should produce products that utilise it

Question 5

Balance of Payments

Answer 5

Record of economic of flows per unit time

Question 6

BOP items (4)

Answer 6

Goods, services, flows related to factors of production, financial asset flows

Question 7

Exchanges vs Transfers

Answer 7

Transfers are one-sided

Question 8

Errors + Omissions = (2)

Answer 8

Debits - Credits

Question 9

Primary Account items (5)

Answer 9

Wages, Investment income, Interest payment, Capital sales, Taxes on G&S

Question 10

Capital Account items (2)

Answer 10

Financial asset flows and Non-financials such as IP, Bandwidth, Property rights (intangibles)

Question 11

Financial Account items (3)

Answer 11

Investment, Derivative and reserve assets

Question 12

Financial Account Balance

Answer 12

Net acquisition of assets - Net incurrence of liabilities

Question 13

A negative FAB means

Answer 13

Net Borrower from the world

Question 14

FAB sections (3)

Answer 14

Direct; Portolio; Derivative + Other

Question 15

Direct vs Portfolio investments

Answer 15

Direct is ownership

Question 16

Government bonds are in which Financial Account?

Answer 16

Portfolio - Cannot take ownership of Govnt Bonds

Question 17

BOP Balance

Answer 17

CAB + KAB - FAB + NEO = 0

Question 18

IIP

Answer 18

International Investment Position = Assets - Liabilities

Question 19

Positive FAB … the IIP

Answer 19

improves

Question 20

Negative CAB and KAB means … so … IIP

Answer 20

spending .. deteriorates

Question 21

Exceptional Financing

Answer 21

Debt forgiveness and DSA etc.

Question 22

Trade Balance (f(Absorption))

Answer 22

Net Exports = GDP - Absorption (C+I+G)

Question 23

Trade Balance (CFA way)

Answer 23

S - I = Net Exports

Question 24

BOP key accounting notes (2)

Answer 24

Accrual (not cash) based, of residents vs non-residents

Question 25

External Assessment : SSLuR

Answer 25

Size of obligations; Stability of flows; Liquidity of assets; Rigidity of financing needs

Question 26

Implicit Interest Rate

Answer 26

Interest Payments / Average Debt Stock

Question 27

Roll over Rate

Answer 27

New Disbursements / Amortization Payments

Question 28

ST debt at remaining maturity

Answer 28

Stock + Amortization payment of LT debt

Question 29

Terms of Trade

Answer 29

Value of Exports / Value of Imports

Question 30

Absolute Purchasing Parity based on ...

Answer 30

rule of one price (a burger in japan should cost the same as a burger in NY)

Question 31

Why does Absolute PPP not hold

Answer 31

Frictions of availability and tariffs

Question 32

Relative PPP relates (1) to (2)

Answer 32

Price change to inflation differentials

Question 33

Uncovered Interest Rate Parity states

Answer 33

Investing currency A at its rate a should return the same if I take currency A, convert it to dollars, and invest in the dollar rate d

Question 34

In Uncovered IRP, investors must be ... because ...

Answer 34

Risk Neutral ... Exchange Rate of repatriation is not guaranteed

Question 35

Balassa-Samuelson states

Answer 35

Wages in non-tradeable sectors increases because of migration of labour with the tradeable sector (where wages increase with demand)

Question 36

Range of elasticity for : import quantity %chg to real output %chg (developing economies)

Answer 36

1-2

Question 37

Range of elasticity for : import quantity %chg to relative import prices % chg (developing economies)

Answer 37

0.1-0.7

Question 38

Range of elasticity for : export quantity %chg to potential output %chg (developing economies)

Answer 38

1-2

Question 39

Range of elasticity for : export quantity %chg to potential output %chg (developing economies)

Answer 39

0.5-1

Question 40

Key Reserve Indicators (3)

Answer 40

Import Coverage; M2 Coverage; ST Debt coverage

Question 41

Import Coverage "good" threshold

Answer 41

3 months

Question 42

M2 Coverage "good" threshold for floating vs fixed regimes

Answer 42

10% vs 20%

Question 43

ST Debt Coverage "good" threshold

Answer 43

Over 100% according to Greenspan-Guidotti rule