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1、“Nationalsavingcanbeuseddomesticallyorinternationally.”ExplainthebasisforthisAnswers:Savingcanbeusedtomakeinvestments.Thecountrycanuseitsnationalsavingtomakedomesticrealinvestmentsinnewproductioncapital(buildings,machineryandsoftware),innewhousing,andinadditionstoinventories,oritcanuseitsnationalsavingtoinvestinforeignfinancialassets.Ifitusesitsnationalsavingtomakedomesticrealinvestment,benefitstothenationincludetheincreasesinproductioncapacityandcapabilitiesthatresultfromnewproductioncapitalandthehousingservicesthatflowfromalargerstockofhousing.Ifitusesitsnationalsavingtomakeforeigninvestments,benefitstothenationincludethedividends,interestpayments,andcapitalgainsthatitearnsonitsforeigninvestments,whichaddtothenationalincomeofthecountryinthefuture.2.“Foracountrythathasasurplusinitscurrentaccountandwantstoreducethissurplus,oneAnswers:Disagree.Ashifttosavingmorewouldtendtoincreasethesurplus,notreduceit.Thecurrentaccountbalanceequalsnetforeigninvestments,andnetforeigninvestmentisthedifferencebetweennationalsavinganddomesticrealinvestment.Ifnationalsavingincreases,thennetforeigninvestmenttendtoincreases,andthecurrentaccountbalancetendstoincrease(thesurplustendstoincrease).3.WhatarethemajortypesoftransactionsoractivitiesthatresultinsupplyofforeigncurrencyinAnswers:Importsofgoodsandservicesresultindemandforforeigncurrencyintheforeignexchangemarket.Domesticbuyersoftenwanttopayusingdomesticcurrency,whiletheforeignsellerswanttoreceivepaymentintheircurrency.Intheprocessofpayingfortheseimports,domesticcurrencyisexchangedforforeigncurrency,creatingdemandforforeigncurrency.Internationalcapitaloutflowsresultinademandforforeigncurrencyintheforeignexchangemarket.Inmakinginvestmentsinforeignfinancialassets,domesticinvestorsoftenstartwithdomesticcurrencyandmustexchangeitforforeigncurrencybeforetheycanbuytheforeignassets.Theexchangecreatesdemandforforeigncurrency.Foreignsalesofthiscountry’sfinancialassetsthattheforeignershadpreviouslyacquiredandforeignborrowingfromthiscountryareotherformsofcapitaloutflowthatcancreatedemandforforeigncurrency.4.ABritishbankhasacquiredalargenumberofdollarsinitsdealingswithitsclients.Answers:TheBritishbankcouldusetheinterbankmarkettofindanotherbankthatwaswillingtobuydollarsandsellpounds.TheBritishbankcouldsearchdirectlywithotherbanksforagoodexchangerateforthetransaction,oritcoulduseaforeignexchangebrokertoidentifyagoodratefromanotherbank.TheBritishbankshouldbeabletosellitsdollarstoanotherbankquicklyandwithverylowtransactionscosts.5.Foraninvestmentinaforeign-currency-denominatedfinancialasset,partofthereturncomesAnswers:Agree.Asaninvestor,Ithinkofmywealthandreturnsfrominvestmentsintermsofmyowncurrency.WhenIinvestinaforeign-currency-denominatedfinancialasset,Iam(actuallyoreffectively)buyingboththeforeigncurrencyandtheasset,Partofmyoverallreturncomesfromthereturnontheassetitself--forinstance,theyieldorrateofinterestthatitpays.Theotherpartofmyreturncomesfromchangesintheexchange-ratevalueofforeigncurrency.Iftheforeigncurrencyincreasesinvalue(relativetomyowncurrency)whileIamholdingtheforeignasset,thevalueofmyinvestment(intermsofmyowncurrency)increases,andIhavemadeanadditionalreturnonmyinvestment.(Ofcourse,iftheexchange-ratevalueoftheforeigncurrencygoesdown,Imakealossonthecurrencyvalue,whichreducesmyoverallreturn.)6、Whatisthedifferencebetweenacleanfloatandamanagedfloat?Answers:Inthecleanboat,thegovernmentallowstheexchange-ratevalueofitscurrencytobedeterminedsolelybyprivate(ornonofficial)supplyanddemandintheforeignexchangemarket,thegovernmenttakesnodirectactionstoinfluenceexchangerates.Inamanagedfloat,thegovernmentiswillingtoandsometimesdoestakedirectactionstoattempttoinfluencetheexchange-ratevalueofitscurrency.Forinstance,themonetaryauthoritiesofthecountrymaysometimesinterveneinthemarket,buyingorsellingforeigncurrency(inexchangefordomesticcurrency)inanefforttoinfluencethelevelortrendofthefloatingexchangerate.7.AgovernmenthasjustimposedatotalsetofexchangeAnswers:Theexchangecontrolsareintendedtorestraintheexcessprivatedemandforforeigncurrency(thesourceofthedownwardpressureontheexchange-ratevalueofthecountry'scurrency).Thus,somepeoplewhowanttoobtainforeigncurrency,andwhowouldbewillingtopaymorethanthecurrentexchangerate,donotgettobuytheforeigncurrency.Thiscreatesalossofwell-beingforthecountryasawholebecausesomenetmarginalbenefitsarebeinglost.Furthermore,thesefrustrateddemandersarelikelytoturntoothermeanstoobtainforeigncurrency.Theymaybribegovernmentofficialstoobtainthescarceforeigncurrency.Ortheymayevadetheexchangecontrolsbyusinganillegalparallelmarkettoobtainforeigncurrency(typicallyatamuchhigherpricethantheofficialrate).8WhatarethekeyfeaturesoftheinternationalcurrencyexperienceintheperiodbetweentheAnswers:Keyfeaturesoftheinterwarcurrencyexperiencewerethatexchangerateswerehighlyvariable,especiallyduringthefirstyearsafterWorldWarIandduringtheearly193Os.Speculationseemedtoaddtotheinstability,andgovernmentssometimesappearedtomanipulatetheexchange-ratevaluesoftheircurrenciestogaincompetitiveadvantageOneless