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doc

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yassintolba2003
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Prof.

Chunming Yuan
ECON 482 International Finance
Department of Economics, University of Maryland, Baltimore County

Analytical Assignments
(You are expected to finish both problems (1 & 2) as follows. Note: Free data links are
provided on the Blackboard under “Free Data Links”. Although I suggest data link
below for each specific assignment, you may obtain relevant data from alternative data
sources)

1. Basics of Exchange Rates

(a). Visit the website of the Board of Governors of the Federal Reserve System at
https://www.federalreserve.gov/ Click on the tab “Data” and then under the center column
“Exchange Rates and International Data”, click “Foreign Exchange Rates - H.10/G.5”. Click on
the tab “Country Data”, you can find major daily exchange. What has happened to the value of
the U.S. dollar relative to the Canadian dollar, Japanese yen, and Danish krone since 2000
(Earlier data are also available, the default is 2000-present)?

Using the information above, what has happened to the value of U.S. dollar relative to the
British pound and the euro? Note: The H.10 release quotes these two exchange rates as U.S.
dollars per unit of foreign currency in line with long-standing market convention.

(b). Go to the website for Federal Reserve Economic Data (FRED):


http://research.stlouisfed.org/fred2/. Locate the monthly exchange rate data for the following:

(1) Canada (dollar), 1980-present

(2) China (yuan), 1999-2004, 2005-2009, 2009-2010, and 2010-present

(3) Mexico (peso), 1993-1995 and 1995-present

(4) Thailand (baht), 1986-1997 and 1997-present

(5) Venezuela (bolivar), 2003-present

Look at the graphs and make your own judgement as to whether each currency was fixed (peg
or band), crawling (peg or band), or float relative to the U.S. dollar during each time frame
given.

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2. The U.S. Current Deficits

Note: To answer the following questions, you may find that it would be helpful (although it’s not
required) to read articles provided in the reading list, such as Bernanke (2005), Yang (2012), Roubini
and Setser (2004), and Mann (2002).

(a). Make a chart of the U.S. current account deficit, both in absolute $ value and as a share of GDP
from 1990 to present. Find the most recent estimate of the U.S. current account deficit for the
next two quarters (Note: depending on the availability of actual data. If actual data is available
up to the third quarter of 2019, you should look for the estimate for 2019Q4 and 2020Q1).

(b). For the same sample period (1990-present), chart the evolution of the net foreign assets of the
U.S. (NIIP) and decompose the total NIIP in the part that is the net stock of foreign direct
investment from the part that is the rest (portfolio, banks, other forms of debt).

(c). Discuss the evolution of the U.S current account deficit and net foreign assets: how much of the
evolution of the deficit (as a share of GDP) is due to changes in private savings, public savings
(fiscal deficits) and investment rate (all as a share of GDP) and how much has the role of
different factors changed over time?

(d). Based on this analysis, are the U.S. current account and external debt sustainable? Does the
U.S. differ or not from emerging markets or not and why?

(e). How likely are the risks of a crash of the U.S. dollar triggered by foreign investors reduced
willingness to lend to the U.S. and accumulate U.S. assets?

(f). Will the U.S. dollar strengthen or weaken in the next 2 years and relative to which currencies
and why?

Data are available from the Bureau of Economic Analysis: https://apps.bea.gov/iTable/index_nipa.cfm


Click “Beginning using the data”, you can find

1. Section 1: Table 1.1.5 Nominal GDP. Make sure you modify the time span to set the starting year is
1990, similar for downloading other tables. To do that, when you are on the table page, click
“Modify”, then select the years desired.

2. Section 4: Table 4.1. You can find current account balance at Row 35.

Data on the net foreign assets of the United States can be obtained from the table on the (Net)
International Investment Position (NIIP) of the United States published in the Survey of Current
Business, Bureau of Economic Analysis, U.S. Department of Commerce:

https://apps.bea.gov/iTable/index_ita.cfm

Click “Beginning using the data”, choose “International Transactions (ITA)” (Note: Do not use
“International Investment Position (IIP)” as this one does not provide quarterly data before 2006).
Row 38 of Table 1.1 is the net foreign assets of the U.S. (NIIP). The net stock of foreign direct
investment is given by Row 20 minus Row 25.
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