Question 1. This question takes a bit of thought. It is meant to get you to think a bit more about some of the international accounting measures we have encountered in class. This is a muscle-builder, meaning it is perhaps more difficult than what you may be tested on.

Information for the economy of Pogo

2019

• Interest payments received from Foreign on Foreign assets owned by Pogo: $45M
• Interest payments paid to Foreign citizens on Pogo assets owned by Foreign: $48M
• Federal Reserve Bank of Pogos holding of interest-free Foreign assets, start of 2019: $85M

2020

• Interest payments received from Foreign on Foreign assets owned by Pogo: $46M
• Interest payments paid to Foreign citizens on Pogo assets owned by Foreign: $52M
• Federal Reserve Bank of Pogos holding of interest-free Foreign assets, start of 2020: $77M

Assumptions:

• Interest rate on Foreign assets is 5% and the Interest rate on Pogo assets is 8% for both 2019 & 2020.
• Foreign central bank does not hold Pogo assets
• There are no Foreigners working in Pogo and no Pogo citizens working in Foreign during these years.

Questions:

1. What is Pogos international net worth at the start of 2019? Show your work.

2. What is Pogos current account, CA, in 2019. Show your work.

3. What is Pogos trade account, TA, in 2019. Show your work.

4. What is Pogos international net worth at the start of 2020? Show your work.

5. What is Pogos balance of payments in 2019? Show your work

Question 2. A zero-coupon bill issued by the UK government with a face value of 2000 pounds and matures in 3 months is currently trading at 1950 pounds. A similar bill, issued by the Swedish government has a face value of 100,000 Skr is selling at 96,000 Skr. Assume the British pound is currently trading at 12 Skr. Given this information, at what value, approximately, does the market believe the pound will trade at in 3 months time, assuming uncovered interest parity holds. Work this out the nearest 3 decimal points. Show and explain your work.