1. If an increase in government deficits leads automatically to a deterioration of the current account, what is then the point of studying the current account?Why not just study fiscal deficits and be done?
2. Why is it that incurring a current account deficit today entails an increase in exports of future consumption?
3. Why is it that equilibrium in the foreign exchange market requires equality of rates of return expressed in the same currency?
4. What is the equilibrium condition for three currencies: Yen, Euro, and US$?
5. For given domestic and foreign interest rates, an increase in the expected price of foreign currency in terms of domestic currency, leaves today's price of foreign currency in terms of domestic currency unchanged.True or false, explain.
6. Show that the equilibrium exchange rate implied by E^e_$/(1+R)/E_$/ = (1+R_$ ) is the same exchange rate implied by E^e_/$(1+R_$)/E_/$ = (1+R ).