Kappa: 0 Kappa produces 2400 more units of output than Alpha. 0 Households consume 1050 more units of output than Beta's households. 0 The government runs a balanced budget. Other information: o The central banks of all three countries do not make any transactions with the private sector. In other words, the central banks only make transactions with other countries' monetary authorities. a) Complete Table 1. No explanation is required for this part of the question; however, you should understand the logic behind so that you could work on similar questions in the future. (20 points) b) Based on your answer in part (a), which country/countries (include both the central bank and the private sector) accumulate foreign wealth? Explain. (5 points) Note: The table is reprinted on page 5 of this assignment. You MUST submit that page with your assignment for grading; otherwise, you will be receiving a grade of zero for this question. Question 2 (20 points) (save your answer as HWl-Q2.pdi) Suppose you are working for an international investment rm, and you observe that 2-year bond rates in Singapore and Germany are 3.52% per annum and 3.125% per annum respectively. a) You get the following quotes: Ess/e = 1.4623 2-year forward rate: Fss/e, 2-year = 1.4641 Is there any arbitrage opportunity? If yes, what would you do? If not, why? Explain. (8 points) Note: Assume your rm does not have any funds denominated in Singapore dollar (S$) and euro (6) and remember to do the interest rate conversion into appropriate time period (using the simple method to covert annualized interest rate to the appropriate time period will be sufcient, i.e., no need to worry about compounding when maturity is less than a year and remember to take the compounding of the interest rates into consideration if it is more than a year). b) Suppose your rm can move the markets (i.e., change the spot exchange rate, the forward exchange rate, and the corporate bond yields in both countries), what happens to these four terms after the transactions you carried out in part (a)? Explain in words. (8 points) 0) Find the S$/ spot rate such that your rm will be indifferent between holding the Singaporean corporate bonds and the German corporate bonds. (4 points) Note: 1) Keep your answers to 4 decimal points if needed. 2) This question requires you to use the precise form of covered interest rate parity. 3) Instead of the assumption made in class (individuals are small players and cannot affect the exchange rates and interest rates), the rm in this question is a LARGE player that has the ability to affect the exchange rates and the corporate interest rates when they move funds across different markets. 4) Use the subscripts \"S\" and \"G\" to represent all the variables and terms used for Singapore and Germany respectively in your written explanation. You must use these notations; otherwise, you will receive a grade of ZERO for the whole question. MGEC61 Assignment 1 (Fall 2023) 4 Answer for Question 1 (Upload this page with your answers in your assignment for grading) A B C Gross domestic product, GDP 10000 Consumption, C 8220 Investment, I 730 Government spending, G Taxes, T 4655 Exports, EX Imports, IM Private saving, SP Public saving, SG National saving, S Net unilateral transfer 0 0 0 Current account, CA -1445 Sales of country's financial assets to foreign residents Purchases of foreign financial assets by domestic 2237 3450 residents Official reserve transactions, ORT 330 Financial account, KA Capital account 668 MGEC61 Assignment 1 (Fall 2023)Question 1 (25 points) (save your answer as HWl-Q1.pdf) The world consists of three countries, Alpha, Beta, and Kappa, only. Table 1 macroeconomic data for these three countries. Table 1 provides some Alpha Beta Gross domestic product, GDP 10000 Consumption, C 8220 Investment, I 730 Government spending, G Taxes, T 4655 Exports, EX Imports, IM Private saving, SP Public saving, SG National saving, S Net unilateral transfer Current account, CA 1445 Sales of country's nancial assets to foreign residents Purchases of foreign financial assets by domestic residents 2237 3450 Ofcial reserve transactions, ORT 330 Financial account, KA Capital account 668 Note: Empty cell only means the data is not given in the question. Additional information about these countries: Alpha: Households consume 68.5% of the nation's output. The government consumes 31.5% of the economy's output and the size of the budget surplus is equal to 12.5% ofits GDP. Although the sales of its products to Kappa reach 3603, it has a trade decit of 224 with Kappa. The stock of ofcial reserves increases by 330. Beta: 0 Private savings reach 1980. o The taxes levied on the households represent 7.7% of the country's GDP. 0 The current account is in balance. 0 The consumption of Alpha's products is 1725, which is the same level of products purchased from Kappa. The total sum of nancial assets sold to residents of Alpha and Kappa is equal to 1936. Residents receive asset transfers of 370 and 298 from residents of Alpha and Kappa respectively. These transactions are non-market transactions. MGEC61 Assignment 1 (Fall 2023)