Explain.

You are given the following data on Country E's international transactions for the year 2018 with

the rest of the world (ROW):

million

Exports of goods and services (paid for in cash) 120

Imports of goods and services 140

Interest, profits and dividends received from ROW 30

Interest, profits and dividends paid to ROW 20

Export of goods on trade credit 40

Loans received from ROW 30

Capital balance -10

Net errors and omissions ?

Increase in official reserves 20

(i) Calculate the current account balance.

(ii) Calculate the financial account balance.

(iii) Calculate the value of the net errors and omissions item (make sure you clearly indicate

whether it is positive or negative).

X2.33 (i) Assume that the public holds all of its money in bank accounts, the banks' liquidity ratio is

12.5% and the monetary base is $100 million.

(a) Calculate the money multiplier and hence the value of the broad money

supply.

(b) Suppose banks reduce their proportion of liquid reserves to deposits from 12.5%

to 10%, calculate the revised value of the broad money supply. [3]

(ii) Suppose the public instead decide to hold 20% of their money as cash rather than put all

their money in the banks.

(a) Explain what would happen to the value of the money multiplier.

(b) Calculate the revised values of the money multiplier and the broad money supply,

assuming that the banks' ratio of liquid reserves to deposits is still 10%.

Let X be a random variable representing the present value of the benefits of a whole of life assurance, and Y be a random variable representing the present value of the benefits of a temporary assurance with a term of n years. Both assurances have a sum assured of 1 payable at the end of the year of death and were issued to the same life aged x. (1) Describe the benefits provided by the contract which has a present value represented by the random variable X - Y. [1] (ii) Show that: cov(X, Y) = A - A, A and hence or otherwise that: var( X - Y) = 'Ax -(m|4,)2 -2 Axml where the functions A are determined using an interest rate of i, and functions 2 A are determined using an interest rate of i- + 2i. [7] [Total 8]