1.If the interest rate on a US security is 2% while the interest rate on a European security is 1.2% the spot rate is e=$1.08/.Moreover, a speculator have figured out that the inflation rate in US recently is 3% and in Europe is 1% so how do you expect the speculator to make money while applying theories that you know?

2.In year 2019 Lebanon recorded the following for international transactions;

A.Exports $4228

B.Imports $18939

C.Services provided to foreigners $16796

D.Services provided by foreigners $14867

E.Tourist net $2456

F.Income provided by investment in foreign countries $3198

G.Income paid to foreigners working in Lebanon $6639

H.Net transfers $772

I.Capital purchases net $1551

J.FDI net $1757

K.Investments and loans net $7387

Source International monetary funds

Please answer the following questions. Note; net in the table if positive implies a surplus for Lebanon.

A.What is the value of the change in the official reserve for Lebanon for year 2019?

B.Does it mean that Lebanon is increasing or decreasing its holding of official reserves(foreign currencies or gold)?

3.Lebanon uses a fixed exchange rate that is tied up to the American Dollar. At a spot rate of e= lbp1515/$. In each case specify what happens to the reserve holding of dollars of BDL Banque du Liban. Please note that you do not get any credit for providing the right answer without supporting it.

A.Lebanese who live abroad are investing in purchasing Lebanese t-bills.

B.Interest on Lebanese risk free security pays a rate of 8% while interest on US risk free security pay interest of 3%. speculators believe that the Lebanese pound will devaluate to e^ex=lbp2000/$ due political crisis.

C.If Syrian pound to dollar is e=syp518/$ and Lebanese pound to Syrian spot e=lbp2.9/syr. Assume that dollars are available in the Lebanese market.

4.Lebanon suffered from trade deficit for almost three decades, yet the central bank managed to keep the spot rate e constant for the entire period. Explain who did the central bank manage to supply for these dollars through out the thirty years.