1) the following information regarding a country's international transactions.

• net increase in the country's holding of foreign assets ( excluding official reserve assets) ----- $352
• net increase in the foreign holdings of the country's ( excluding official reserve assets) ------ $252
• net statistical discrepancy --------- $0

answer the following:

• calculate financial account balance of this country
• Is the country increasing or decreasing its net holding of official reserve assets. show working

2) a) If the $/euro exchange rate was 1.1$/euro in January 2017 and is currently at 1.2$/euro then which currency has appreciated and which currency has depreciated?

b) What is one advantage for the country whose currency has depreciated? Explain.

c) Now suppose that today's dollar/euro exchange rate is 1.03 $/euro and the expected dollar/euro exchange rate for the

future is 1.05$/euro. The interest rates on dollar deposits are 5 % per year. If the interest rates on euro deposits are 5% per

year, then does uncovered interest rate parity (UIP) hold? Yes or no, explain clearly.

d) If UIP does not hold, then explain how the market adjusts towards equilibrium to ensure that UIP holds.