Question

1) A) Explain the concept of current account and financial account;

B) Give an example each.

2) A) Explain some reasons that the US experiences persistent current account

deficit;

B) Explains how the US balances its BOP.

3) Explains the benefits and disadvantages of a fixed exchange rate regimes

4) A) What are the three considerations of currency regimes?

B) Explain the Impossible Trinity.

Answer 1

1.)

A.) There are two parts to a country's balance of payments: current account and financial/capital account.

Current Account - The current account of a country is a record of its net trade in goods and services, its net transfer payments, and its net earnings on cross-border investments measured usually over a year or a quarter.

Financial Account - the financial account keeps a record of cross-border investments in financial instruments (i.e. liabilities to or claims on nonresidents in regards to financial assets) and the changes in reserves of central bank.

B.) An example of each

Current Account - Imports and exports of goods and services

Financial Account - Direct Investments and portfolio investments