International economics Assignment Example | Topics and Well Written Essays - 500 words - 1

International economics - Assignment Example 4. A debtor nation is that which has a negative balance of trade owing to numerous debts owed to international financial institutions while a creditor nation is that which has a positive balance of trade. Entries like exports, loan receipts and investments constitute surplus, hence indicate creditor status while those entries like amount expenditure, are considered deficits and indicate a debtor status (Becker 123). 5. Exchange rate refers to the market rates at which a given currency trades in relation to others. Depreciation refers to the decrease in a country’s exchange rate while appreciation is the decrease in a country’s exchange rate. Arbitrage is the systematic purchase of a good or service from one location at a very low price, and selling it in another location at an exceedingly high price. In exchange markets, arbitrage is used by traders by exploiting weaknesses in computerized systems to make quick profits (Becker 123). 6. Purchasing parity refers to a system normally used in determining various currency values in relation to others. Purchasing power parity would hold when the price of commodities were equal in all countries (Becker 223). A free market economy where goods enter and leave borders may make purchasing parity a good estimate of a country’s currency. 7. The following shows how exchange rate growth is closely connected to differences in money growth, and real output growth across countries whereby the growth of real output leads to a money growth, which subsequently leads to increase in the exchange rate 1. The supply curve is upward sloping since the increase in the supply of Canadian dollars leads to an increase in the value of Icelandic Krona. This may arise due to increased inflation in Canada and poor monetary economic policies. 9. The above graph shows that an increase in the Canadian dollar value leads to a corresponding decrease in the value of the Icelandic Krona. This may take place due to an increased demand