Homework question

Parts 1

Using balance of payment accounts framework, explain how countries become net borrowers and net lenders. What are the subsequent impact on and consequence of exchange rates? Use some realistic example to support your arguments, in terms of lending, borrowing and reserves etc.

Part 2

Identify at least three indicators and discuss how the markets are connected through these indicators. Now assume, using G7, and China, and data since 1980s, determine the correlation among the countries with respect to the below indicators, and analyze the trends.

1.Exchange rate

2.Current account balance (GDP %)

3.Stock market returns

4.Interest rates (%)

5.Foreign direct investment (GDP %)

6.GDP per capita (%)

Part 3

Discuss major development in international finance and globalization that gave rise to the global financial crisis. You need to discuss the channels through which the crisis affect US economic and beyond.