Question

1) Jill uses some euros to purchase a bond issued by a French vineyard. This exchange

a.increases U.S. net capital outflow by more than the value of the bond.

b.increases U.S. net capital outflow by the value of the bond.

c.does not change U.S. net capital outflow.

d.decreases U.S. net capital outflow.

2) Which of the following could be a consequence of an appreciation of the U.S real exchange rate

a. John, a French citizen, decides that Iowa pork has become too expensive and cancels his order.
b. Nick, a U.S. citizen, decides that the trip to Nepal he's been thinking about is now made affordable by the depreciation.
c. Roberta, a U.S. citizen, decides to import fewer windshield wipers for her auto parts company.
d. All of the above are correct.

Answer 1

1. The answer is C.  

If Jill, a US Citizen uses some euros to purchase a bond issued by a French vineyard. This exchange"increases U.S. net capital outflow by the value of the bond." Purchasing Euros to buy French bond will result in capital outflow by the value of the bond.

2.The answer is C.

Roberta, a U.S. citizen, decides to import fewer windshield wipers for her auto parts company will result in less demand for foreign currency.. Hence the US dollar will appreciate against foreign currency due to now less demand for foreign currency and at the same time supply of dollars will be less to purchase foreign currency.