Instructions to students: All questions are compulsory
Dictionaries are not permitted
TASK: EC3012 International Finance Assignment
a)Compare the effects of a devaluation according to:
- The Monetary Approach to the Balance of Payments.
- The Elasticities Approach to the Balance of Payments.
b)Assess critically which assumptions are behind the main differences in the effects of a devaluation according to the two models.
Analyze the effects of a sterilized foreign exchange operation/ intervention according to:
a) The Portfolio balance model.
b) The Fleming- Mundell model. After a monetary expansion, assuming imperfect
Question 3: EC3012 International Finance Assignment
Discuss the following statement critically, displaying your knowledge of the two relevant models and by using equations where necessary:
“The Frankel interest rate differential model offers a more complete approach to the effects of a monetary expansion than the Dornbusch sticky price model”.