2.

A relatively high home inflation rate would cause the imports of foreign goods to decrease and exports to decrease since the price of purchasing foreign goods is cheaper, and the price of the exports are unappealing to the foreign countries. As a result the current account will have a deficit. 5. If the dollar depreciates against all currencies, then the exports will increase, therefore the U.S. balance-of-trade deficit would be smaller. If dollar depreciates against some currencies but appreciates against others, then the balance-of-trade deficit may remain unaffected. 8. The existence of Euro have essentially eliminated the exchange rate risk in the European countries, therefore when the countries will be more inclined to trade with other countries that use the same exchange rate, rather than trading with U.S. In addition, the value of euro would be stronger against dollar, since it is more valuable in terms of being the main currencies in multiple countries, therefore having investing advantage on other countries such as U.S. 9. It may be because the exports from South Korea is similar to the exports from Japan, therefore when the Japanese yen is weak, other countries would be more inclined to purchase from Japan since the cost of imports from Japan would be cheaper compare to imports from South Korea. Therefore South Koreas exports growth depend on the value of the Japanese Yen. 12. a. Since the dollar is presently weak and is expected to strengthen over time, these expectations will affect the U.S. investors to invest more in foreign securities because it will cost less to invest in the same securities than before. However, U.S. investors may also convert their foreign investment back to dollars and invest in U.S. securities instead, because it may generate higher rate of return than the foreign securities has. b. A low U.S. interest rates may leads the U.S.-based MNCs to be more inclined to invest abroad, as the foreign investments may bring in higher rate of return than the U.S. investment. c. Some of the main attractions of foreign investments to U.S. investors include higher rate of returns, the cost of investing and so on.

13.

a. A stronger dollar would decrease the exports of U.S. since the exports become more expansive for the purchasers before, therefore they may stop importing from U.S. therefore enlarging the U.S. balance of trait deficit. A weaker dollar would make the exports more attractive for the importers therefore the U.S. exports would increase, decreasing the balance of trade deficit. b. The floating exchange rate will adjust to reduce or eliminate current account deficit because when the value of a countrys currency will determine the amount of exports and imports( exports decrease and imports increase when the value of currency is strong; exports increase and imports decrease when the value of currency is weak) Therefore offsetting the current account deficit. c. The exchange rate may not always adjust to a current account deficit due to factors such as governmental policies, or the impact of capital flows or trade flows and so on.