Question

1. If $0.40 = 1 DM and L0.27 = 1 DM, what is the dollar ($) price of pounds (L)?

2. Using the information in the following table on Mexico’s 1996 international transactions to answer the questions (amounts are in U.S. dollar values in millions):

Merchandise Imports                                                              $89,469

Merchandise Exports                                                              $96,000

Services Exports                                                     $10,901

Services Imports                                                     $10,819

Investment Income receipts                                     $17,099

Unilateral Transfers                                                 $ 4,531

Given the information above, what is the balance of trade?

What is the current account?

Did Mexico become a larger international debtor during 1996?

Answer 1

1. We have

$0.40 = 1 DM

L0.27 = 1 DM

So, we get $0.40= L0.27

So, we get $1= L 0.675

or 1 L = $ 1.48

So, the Dollar ($) price of Pound (L) is 1L = $1.48

2) Balance of Trade = Merchandise Exports + Service Exports - Merchandise Imports - Services Imports

Balance of Trade = 96,000+10,901-89,469-10,819

Balance of Trade = $ 6,613

Current Account = Balance of Trade + Net Income from Abroad + Net Current Transfers

Current Account = Balance of Trade + Investment Income Receipts + Unilateral Transfers

Current Account = 6613 + 17099 + 4531

Current Account = $ 28,243

Since, we don't have any information about the Capital Transactions of Mexico we cannot say is Mexico became a larger international debtor during 1996.