Question

The United States presently has a current account deficit with Japan. What would happen to dollar/yen...

The United States presently has a current account deficit with Japan. What would happen to dollar/yen spot exchange rate and the current account deficit if there were a decrease in Japanese investment in the United States? Incorporate the foreign exchange market into your answer.

I need a clear explanation about this question. Thank you so much!

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Having a current account deficit indicates the situation in which the value of goods and services that USA imports from Japan exceeds the value of goods and services that it exports to Japan.

Now, if there were a decrease in Japanese investment in USA then demand for dollars will decline in the Japanese market and hence the dollar/yen spot exchange rate will decline. This will happen as the yen will strengthen and the value of USD will decline on a relative basis.

The current account deficit will increase for USA as the foreign exchange market in USA will witness increased outflow of dollars to finance its exports but its inflow of dollars will decline as the level of investments from Japan is declining.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
suppose that American dollar depreciate against Japanese yen. explain how would this affect the current account...
suppose that American dollar depreciate against Japanese yen. explain how would this affect the current account balance in Japan
If a Big Mac costs $2.54 in the United States and 294 yen in Japan, what...
If a Big Mac costs $2.54 in the United States and 294 yen in Japan, what is the estimated exchange rate of dollar per yen as hypothesized by the Hamburger index? Describe the impossible trinity of the currency regime. Provide three examples (countries) of currency regime choices and discuss them. Describe the currency board system and dollarization. Describe the five sub-accounts of BOP. Provide one example of transactions that should be counted into each account. Explain why devaluation of home...
1. Suppose that the United States fixes the dollar-pound exchange rate. In the process of maintaining...
1. Suppose that the United States fixes the dollar-pound exchange rate. In the process of maintaining the fixed exchange rate, the U.S. central bank regularly finds itself in a position of having to increase its reserves of pounds. Based on this, we could conclude that the fixed dollar-pound exchange rate consistently exceeds the equilibrium exchange rate that would be produced by a private foreign exchange market. the U.S. central bank is regularly having to reduce the domestic money supply. the...
The United States has had a Current Account deficit for decades, yet the economy continues to...
The United States has had a Current Account deficit for decades, yet the economy continues to expand. How can this be? Should a Current Account surplus be a policy objective? Do these Current Account deficit really matter?
1a. The nominal exchange rate between the United States dollar and the Japanese yen is which...
1a. The nominal exchange rate between the United States dollar and the Japanese yen is which of the following? -The reciprocal of the real exchange rate -The rate at which one of the currencies can be converted into the other currency -Always equal to the real effective exchange rate except when nominal interest rates within the two countries diverge -Always equal to the real effective exchange rate except when real interest rates within the two countries diverge b. If German...
1. What does it mean to have a current account deficit? Explain in terms of net...
1. What does it mean to have a current account deficit? Explain in terms of net foreign assets, absorption, and the capital and financial accounts. 2. In a previous question, you considered a trade in automobiles between the United States and Europe. Like that example, a dollar depreciation results in a "dip" of net import before a favorable trade balance. This "dip" is counter-intuitive because the dollar depreciation should make the exports from the U.S. cheaper and the imports to...
If on Tuesday you can buy 125 yen per U.S. dollar and on Wednesday you can...
If on Tuesday you can buy 125 yen per U.S. dollar and on Wednesday you can buy 120 yen per U.S. dollar, a. both the U.S. dollar and the yen have appreciated. b. both the U.S. dollar and the yen have depreciated. c. the U.S. dollar has appreciated and the yen has depreciated. d. the U.S. dollar has depreciated and the yen has appreciated. If the U.S. dollar appreciates in the foreign exchange market, a. American goods will become more...
1. When the U.S. dollar depreciates relative to other major currencies, what would happen to exports...
1. When the U.S. dollar depreciates relative to other major currencies, what would happen to exports and imports of goods and services from and to the United States? Is it good for domestic firms exporting goods and services? Is it good for domestic portfolio investors who may purchase foreign assets? 2. When the Federal Reserve conducts an expansionary monetary policy (increasing its monetary base), what would happen to the domestic money supply? Does this also affect the supply of dollar...
Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry for 500 million yen payable...
Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry for 500 million yen payable in one year. The current spot rate is ¥124/$ and the one-year forward rate is 110¥/$. The annual interest rate is in Japan is 5% for lending and 6% for borrowing; and in the United States it is 7% for lending and 8% for borrowing. The WACC is 7%. PCC can also buy a one-year call option on yen at the strike price of...
QUESTION 9 Assume that the yen is selling at a forward discount in the forward-exchange market....
QUESTION 9 Assume that the yen is selling at a forward discount in the forward-exchange market. Then, most likely a. interest rates are higher in Japan than in the United States. b. this currency is gaining strength in relation to the dollar. c. interest rates are declining in Japan. d. this currency has low exchange-rate risk. QUESTION 10 America has run a trade deficit with UK for several years. To eliminate the deficit, the USD must _______ against the British...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT