Explain why a stronger PKR could enlarge the Pakistan balance-of-trade deficit. Explain why a weaker PKR could affect the Pakistan balance of- trade deficit.

b. It is sometimes suggested that a floating exchange rate will adjust to reduce or eliminate any current account deficit. Explain why this adjustment would occur.

c. Why does the exchange rate not always adjust to a current account deficit?

II) Recently, Wal-Mart established two retail outlets in the city of Shanzen, China, which has a population of 3.7 million. These outlets are massive and contain products purchased locally as well as imports. As Wal-Mart generates earnings beyond what it needs in Shanzen, it may remit those earnings back to the United States.

Wal-Mart is likely to build additional outlets in Shanzen or in other Chinese cities in the future.

a. Explain how the Wal-Mart outlets in China would use the spot market in foreign exchange.

b. Explain how Wal-Mart might utilize the international money markets when it is establishing other Wal-Mart stores in Asia.

c. Explain how Wal-Mart could use the international bond market to finance the establishment of new outlets in foreign markets

III) Today you notice the following exchange rate quotations: (a) $1 _ 3.00 Argentine pesos and

(b) 1 Argentine peso _ .50 Canadian dollars.

You need to purchase 100,000 Canadian dollars with U.S. dollars. How many U.S. dollars will you need for your purchase?