International Investments Chapter 2: Problems 12, 14, and 15.Chapter 3: Problems 21, 22, and 23

Chapter 2: Problems 12, 14, and 15

Chapter 3: Problems 21, 22, and 23

)International Investments.

a.)The expectations of a strong dollar would discourage U.S. investors from investing abroad. If the dollar is relatively weak now, U.S. investors need more dollars to make purchase foreign currency (when investing). If the dollar strengthens over their investment horizon, they will exchange the foreign currency (as the investment is quidated) into dollars at a less favorable exchange rate than the exchange rate at which they converted dollars into the foreign currency. That is, the exchange rate effect would reduce the yield that they earn on their investment.

b.)Low U.S. interest rates can encourage U.S.-based MNCs to invest abroad, as investors seek higher returns on their investment than they can earn in the U.S.

c.)The main attraction is potentially higher returns. The international stocks can out perform U.S. stocks, and international bonds can outperform U.S. bonds. However, there is no guarantee that the returns on international investments will be so favorable. Some investors may also pursue international investments to diversify their investment portfolio, which can possibly reduce risk.

14.)Impact of government policies on trade

The difference between a country's exports and imports of goods but country's industries respond by producing more of that good and less of other goods. This way, countries naturally tend to specialize in those goods in which they have a comparative advantage. Sometimes, however, the process cannot operate freely because of high trading costs, trading partners of extremely different sizes, increasing opportunity costs, or government barriers to trade. As a result, complete specialization may fail to occur. The U.S. has run a chronic merchandise trade deficit because it has been importing more than it exports., while China has a merchandise trade surplus because it has been exporting more than it imports

15.)China U.S. Balance of trade

Trade and financial flows between the U.S. and China has complicated this relationship, tightening the economic entanglements between the two economies and making them more contentious 20 percent rise in the yuan would cause severe job losses and trigger social instability, putting the nation on course for a clash with U.S. lawmakers demanding a stronger currency. Analysts also point out that use of foreign inputs in Chinese exports is likely to dilute the exchange rate relationship between China and U.S imbalances. In this line of debate, analysts point out that valuation of China's Yuan would not seal the