S-18 Solutions Chapter 3 Exchange Rates I: The Monetary Approach in the Long Run

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1 S-18 Solutions Chapter 3 Exchange Rates I: The Monetary Approach in the Long Run e. Suppose the ank of Korea wants to maintain an exchange rate peg with the Japanese yen. What money growth rate would the ank of Korea have to choose to keep the value of the won fixed relative to the yen? To keep the exchange rate constant, the ank of Korea must lower its money growth rate. We can figure out exactly which money growth rate will keep the exchange rate fixed by using the fundamental equation for the simple monetary model (used above in [b]): % E e won/ ( K g K ) ( J g J ) The objective is to set % E e won/ 0: ( * K g K ) ( J g J ) Plug in the values given in the question and solve for * K : ( * K 6%) (2%. 1%) * K 7% Therefore, if the ank of Korea sets its money growth rate to 7%, its exchange rate with Japan will remain unchanged. f. Suppose the ank of Korea sought to implement policy that would cause the Korean won to appreciate relative to the Japanese yen. What ranges of the money growth rate (assuming positive values) would allow the ank of Korea to achieve this objective? Using the same reasoning as previously, the objective is for the won to appreciate: % E e won/ 0 This can be achieved if the ank of Korea allows the money supply to grow by less than 7% each year. The diagrams on the following page show how this would affect the variables in the model over time. 8. This question uses the general monetary model, in which L is no longer assumed constant and money demand is inversely related to the nominal interest rate. Consider the same scenario described in the beginning of the previous question. In addition, the bank deposits in Japan pay 3% interest; i 3%. a. Compute the interest rate paid on Korean deposits. Fisher effect: (i won i ) ( K J ) Solve for i won (6% 1%) 3% 8% b. Using the definition of the real interest rate (nominal interest rate adjusted for inflation), show that the real interest rate in Korea is equal to the real interest rate in Japan. (Note that the inflation rates you calculated in the previous question will apply here.) r i J 2% 1% 1% r won i won K 8% 6% 2% c. Suppose the ank of Korea increases the money growth rate from 12% to 15% and the inflation rate rises proportionately (one for one) with this increase. If the nominal interest rate in Japan remains unchanged, what happens to the interest rate paid on Korean deposits? We know that the inflation rate in Korea will increase to 9%. We also know that the real interest rate will remain unchanged. Therefore: i won r won K 1% 9% 10%.

2 Solutions Chapter 3 Exchange Rates I: The Monetary Approach in the Long Run S-19 d. Using time series diagrams, illustrate how this increase in the money growth rate affects the money supply, M K ; Korea s interest rate; prices, P K ; real money supply; and E won/ over time. (Plot each variable on the vertical axis and time on the horizontal axis.) See the following diagrams. ank of Korea increases money growth rate M K 2 1 Time P K i won Time Time M K / P K E won/y T Time T Time 9. oth advanced economies and developing countries have experienced a decrease in inflation since the 1980s (see Table 3-2 in the text). This question considers how the choice of policy regime has influenced this global disinflation. Use the monetary model to answer this question. a. The Swiss Central ank currently targets its money growth rate to achieve policy objectives. Suppose Switzerland has output growth of 3% and money growth of 8% each year. What is Switzerland s inflation rate in this case? Describe how the Swiss Central ank could achieve an inflation rate of 2% in the long run through the use of a nominal anchor. From the monetary approach: S S g S 8% 3% 5%. If the Swiss Central ank wants to achieve an inflation target of 2%, it would need to reduce its money growth rate to 5%: * S S g S 2% 3% 5%.

3 4 15 Exchange Rates II: The Asset Approach in the Short Run 1. Use the money market and FX diagrams to answer the following questions about the relationship between the ritish pound ( ) and the U.S. dollar ($). The exchange rate is in U.S. dollars per ritish pound, E $/. We want to consider how a change in the U.S. money supply affects interest rates and exchange rates. On all graphs, label the initial equilibrium point A. a. Illustrate how a temporary decrease in the U.S. money supply affects the money and FX markets. Label your short-run equilibrium point and your long-run equilibrium point C. See the diagram below. i $ MS 2 MS 1 ER i 2 $ i 2 $ DR 2 i 1 $ A C i 1 $ A = C DR 1 MD 1 FR 1 M 2 US M 1 US E 2 E 1 E $/ P 1 US P 1 US S-23

4 S-24 Solutions Chapter 4(15) Exchange Rates II: The Asset Approach in the Short Run b. Using your diagram from (a), state how each of the following variables changes in the short run (increase/decrease/no change): U.S. interest rate, ritish interest rate, E $/, E e $/, and the U.S. price level. The U.S. interest rate increases, the ritish interest rate does not change, E $/ decreases, E e $/ does not change, and the U.S. price level does not change. c. Using your diagram from (a), state how each of the following variables changes in the long run (increase/decrease/no change relative to their initial values at point A): U.S. interest rate, ritish interest rate, E $/, E e $/, and U.S. price level. All of the variables return to their initial values in the long run. This is because the shock is temporary, implying the central bank will increase the money supply from M 2 to M 1 in the long run. 2. Use the money market and FX diagrams from (a) to answer the following questions. This question considers the relationship between the Indian rupees (Rs) and the U.S. dollar ($). The exchange rate is in rupees per dollar, E Rs/$. On all graphs, label the initial equilibrium point A. a. Illustrate how a permanent increase in India s money supply affects the money and FX markets. Label your short-run equilibrium point and your long-run equilibrium point C. See the following diagram. Thick arrows indicate temporary movement while thinner ones indicate the movements in the long run. In the short run, prices are fixed. Therefore the real money supply changes from MS 1 to MS 2, thus temporarily lowering the domestic interest rate. In the long run, as prices rise, the real money supply and interest rate return to their original level. In the foreign exchange market, FR shifts to the right and stays there permanently because of an expected depreciation of rupees. i Rs MS 1 MS 2 ER i 1 Rs A C i 1 Rs A C DR 1 i 2 Rs i 2 Rs DR 2 MD 1 FR 1 FR 2 M 2 IN M 1 IN M 2 IN E 1 E 3 E 2 E Rs/$ P 2 IN P 1 IN P 1 IN

5 Solutions Chapter 4(15) Exchange Rates II: The Asset Approach in the Short Run S-25 b. y plotting them on a chart with time on the horizontal axis, illustrate how each of the following variables changes over time (for India): nominal money supply M IN, price level P IN, real money supply M IN /P IN, India s interest rate i Rs, and the exchange rate E Rs/$. See the following diagrams. M IN i Rs P IN E Rs/$ T T n M IN /P IN M IN /P IN c. Using your previous analysis, state how each of the following variables changes in the short run (increase/decrease/no change): India s interest rate i Rs, E Rs/$ ERs/$, e and India s price level P IN. India s interest rate decreases, the U.S. interest rate remains unchanged, E Rs/$ increases, ERs/$ e increases, and India s price level remains unchanged. d. Using your previous analysis, state how each of the following variables changes in the long run (increase/decrease/no change relative to their initial values at point A): India s interest rate i Rs, E Rs/$ ERs/$, e India s price level P IN. India s interest rate remains unchanged, the U.S. interest rate remains unchanged, E Rs/$ increases, ERs/$ e increases (remains unchanged in transition from short to long run), India s price level increases. e. Explain how overshooting applies to this situation. The short-run exchange rate overshoots its long-run value, E E as in the text Figure 4-13 (15-13). We can see this in the impulse response diagrams shown previously. The overshooting is caused by the investors adjustment of exchange rate expectations coupled with lower domestic interest rates. Since the rupees interest rate falls, investors must be compensated by a rupee appreciation for UIP with U.S. interest rate to hold. For a rupee appreciation to be possible, it must depreciate more in the short run than its longer-run value.

6 S-26 Solutions Chapter 4(15) Exchange Rates II: The Asset Approach in the Short Run 3. Is overshooting (in theory and in practice) consistent with purchasing power parity? Consider the reasons for the usefulness of PPP in the short run versus the long run and the assumption we ve used in the asset approach (in the short run versus the long run). How does overshooting help to resolve the empirical behavior of exchange rates in the short run versus the long run? Yes, overshooting is consistent with PPP. Investors forecast the expected exchange rate based on the theory of PPP. When there is some change in the market, the investors know the exchange rate will change to equate relative prices in the long run. This is why we observe overshooting in the short run the investors incorporate this information into their short-run forecasts. Exchange rates are volatile in the short run. The theory s implication that there is exchange rate overshooting (in response to permanent shocks) is one explanation for short-run volatility in exchange rates. 4. Use the money market and foreign exchange (FX) diagrams to answer the following questions. This question considers the relationship between the euro ( ) and the U.S. dollar ($). The exchange rate is in U.S. dollars per euro, E $/. Suppose that with financial innovation in the United States, real money demand in the United States decreases. On all graphs, label the initial equilibrium point A. a. Assume this change in U.S. real money demand is temporary. Using the FX and money market diagrams, illustrate how this change affects the money and FX markets. Label your short-run equilibrium point and your long-run equilibrium point C. See the following diagram. The long-run values are the same as the initial values because the shock is temporary. Also because the shock is temporary, we assume that the reversal of real money demand occurs before the price level adjusts that is, MD returns from MD 2 to MD 1 before the price level changes. i $ MS 1 ER i 1 $ A C i $ 1 A C DR 1 i 2 $ i 2 $ DR MD 2 MD 1 MUS 1 / PUS 1 E 1 E 2 FR 1 E $/ b. Assume this change in U.S. real money demand is permanent. Using a new diagram, illustrate how this change affects the money and FX markets. Label your short-run equilibrium point and your long-run equilibrium point C. See the following diagram. In the long run, the price level will have to increase to adjust for the drop in real money demand (assuming the central bank does not change the money supply, M). That is, the nominal interest rate returns to its initial value in the long run. This requires that the price level increase to reduce real money supply. The drop in real money demand will have to be met one-for-one with a drop in real money supply (generated by an increase in the price level). In this case, the expected exchange rate changes because the shock is permanent. Therefore, FR schedule in the forex market also shifts upward.

7 Solutions Chapter 4(15) Exchange Rates II: The Asset Approach in the Short Run S-27 i $ MS 3 MS 1 ER A A C i 1 $ C i 1 $ DR 1 i 2 $ i 2 $ DR2 MD 2 MD 1 FR 2 FR 1 M 1 US / P 2 US M 1 US / P 1 US E 1 E 3 E 2 E $/ c. Illustrate how each of the following variables changes over time in response to a permanent reduction in real money demand: nominal money supply M US, price level P US, real money supply M US /P US, U.S. interest rate i $, and the exchange rate E $/. See the following diagrams. M US i $ P US E $/ T T n 1 1 M US /P US 2 2 M US /P US

8 S-32 Solutions Chapter 4(15) Exchange Rates II: The Asset Approach in the Short Run 8. During the Great Depression, the United States remained on the international gold standard longer than other countries. This effectively meant that the United States was committed to maintaining a fixed exchange rate at the onset of the Great Depression. The U.S. dollar was pegged to the value of gold along with other major currencies, including the ritish pound, the French franc, and so on. Many researchers have blamed the severity of the Great Depression on the Federal Reserve and its failure to react to economic conditions in 1929 and Discuss how the policy trilemma applies to this situation. The United States was committed to the fixed exchange rate with gold; consequently, policy makers had to sacrifice either monetary policy autonomy or capital mobility, just as the trilemma suggests. ased on the information given in the question, we can assume that the policy did not respond to the U.S. business cycle (policy makers did not exercise monetary policy autonomy). Thus, if we assume international capital mobility, the United States could not react to the business cycle with a monetary expansion until it abandoned the gold standard. 9. On June 20, 2007, John Authers, investment editor of the Financial Times, wrote the following in his column The Short View : The ank of England published minutes showing that only the narrowest possible margin, 5 4, voted down [an interest] rate hike last month. Nobody foresaw this.... The news took sterling back above $1.99, and to a 15-year high against the yen. Can you explain the logic of this statement? Interest rates in the United Kingdom had remained unchanged in the weeks since the vote and were still unchanged after the minutes were released. What news was contained in the minutes that caused traders to react? Use the asset approach. The news item indicates that investors did not expect the decision to leave interest rates unchanged would be divisive. They thought that any increases in interest rates would happen further in the future. Higher interest rates would lead to an appreciation in the pound sterling. When the minutes showed that interest rate increases were more likely than previously thought, investors came to expect an appreciation sooner rather than later. This caused an appreciation in the current spot exchange rate. 10. We can use the asset approach to both make predictions about how the market will react to current events and understand how important these events are to investors. Consider the behavior of the Union/Confederate exchange rate during the Civil War. How would each of the following events affect the exchange rate, defined as Confederate dollars per Union dollar, E C$/$? a. The Confederacy increases the money supply by 2,900% between July and December of The Confederate money supply increases, the exchange rate increases, and the Confederate dollar depreciates. b. The Union Army suffers a defeat in attle of Chickamauga in September Appreciation in the Confederate dollar is expected because a military victory means a stable economy and monetary policy, implying decreased uncertainty and risk, the exchange rate decreases, and the Confederate dollar appreciates. c. The Confederate Army suffers a major defeat with Sherman s March in the autumn of Just the opposite of (b) above: depreciation in the Confederate dollar is expected because of military defeat increases economic and monetary uncertainty and risk; the exchange rate increases, and the Confederate dollar depreciates.

9 S-36 Solutions Chapter 5(16) National and International Accounts 3. Show how each of the following would affect the U.S. balance of payments. Include a description of the debit and credit items, and in each case identify which specific account is affected (e.g., imports of goods and services, IM; exports of assets, EX A ; and so on. For this question, you may find it helpful to refer to Appendix 1.). a. A California computer manufacturer purchases a $50 hard disk from a Malaysian company, paying the funds from a bank account in Malaysia. Description OP Account Account (detail) Credit/Debit Hard disk imported from Malaysia CA ( ) IM ( ), T ( ) $50 Decrease in Malaysian deposits owned by U.S. firm FA ( ) IMA( ) F $50 b. A U.S. tourist to Japan sells his ipod to a local resident for yen worth $100. Description OP Account Account (detail) Credit/Debit ipod exported to Japan CA ( ) EX ( ), T ( ) $100 Increase in Japanese currency owned by U.S. tourist FA ( ) IM F A( ) $100 c. The U.S. central bank sells $500 million of its holdings of U.S. Treasury bonds to a ritish financial firm and purchases pound sterling foreign reserves. Description OP Account Account (detail) Credit/Debit U.S. bonds sold to ritish firm FA ( ) EX H A( ) $500 mil. Pound-sterling reserves imported from ritain FA ( ) IM F A( ) $500 mil. d. A foreign owner of Apple shares receives $10,000 in dividend payments, which are paid into a New York bank. Description OP Account Account (detail) Credit/Debit Import of factor service (ownership) from ROW CA ( ) IM FS ( ), NFIA ( ) $10,000 New York bank deposits paid to ROW FA ( ) EX H A( ) $10,000 e. The central bank of China purchases $1 million of export earnings from a firm that has sold $1 million of toys to the United States, and the central bank holds these dollars as reserves. Description OP Account Account (detail) Credit/Debit Import of toys from China CA ( ) IM ( ), T ( ) $1 mil. China central bank buys U.S. dollars FA ( ) EX H A( ) $1 mil.

10 Solutions Chapter 5(16) National and International Accounts S-37 f. The U.S. government forgives a $50 million debt owed by a developing country. Description OP Account Account (detail) Credit/Debit Debt forgiveness (gift) KA ( ) KA OUT ( ) $50 mil. Decrease in external assets owned by U.S. entities FA ( ) IM F A( ) $50 mil. 4. In 2010 the country of Ikonomia has a current account deficit of $1 billion and a nonreserve financial account surplus of $750 million. Ikonomia s capital account is in a $100 million surplus. In addition, Ikonomian factors located in foreign countries earn $700 million. Ikonomia has a trade deficit of $800 million. Assume Ikonomia neither gives nor receives unilateral transfers. Ikonomia s GDP is $9 billion. a. What happened to Ikonomia s net foreign assets during 2010? Did it acquire or lose foreign assets during the year? OP CA FA KA 0 CA KA FA Current account deficit of $1 billion ($1,000 million) and the capital account is in a $100 million surplus. $1,000 $100 FA FA $900 EX A IM A The financial account records financial flows in to and out of the country. In this case, the FA surplus indicates that on net, foreigners purchased more Ikonomian assets than Ikonomians purchased foreign assets. Therefore, net foreign assets for Ikonomia declined by $900 million. b. Compute the official settlements balance (OS). ased on this number, what happened to the central bank s (foreign) reserves? The financial account can be split into those transactions conducted by the central bank (official settlements balance) and those conducted by everyone else (nonreserve financial account): FA Official settlements balance Nonreserve financial account Nonreserve financial account is a $750 million surplus. $900 Official settlements balance $750 Official settlements balance $150 The official settlements balance is in a $150 million surplus. This means that foreign central banks purchased more Ikonomian assets (paid for with foreign currency) than the Ikonomian central bank purchases of foreign assets (paid for with domestic currency, U.S. dollars in this case). Therefore, Ikonomia s central bank experienced an increase in its foreign reserve holdings.

11 S-38 Solutions Chapter 5(16) National and International Accounts c. How much income did foreign factors of production earn in Ikonomia during 2010? The current account can be split into three components: the trade balance (final goods and services), the net factor income from abroad (payments to/from factor services), and the net unilateral transfers. CA T NFIA NUT $1,000 $800 NFIA 0. In the question, we are given the trade balance ( $800 million) and the current account ( $1,000 million). NFIA $200. Net factor income from abroad is $200 million. This implies that foreign factors of production located in Ikonomia earned more than Ikonomian factors abroad. NFIA EX FS IM FS. We know that Ikonomian factors abroad earned $700 million. $200 $700 IM FS IM FS $900. Foreign factors located in Ikonomia earned $900 million. d. Compute net factor income from abroad (NFIA). See (c). NFIA $200 million. e. Using the identity OP CA FA KA, show that OP 0. To check our work, we can verify the OP identity: OP CA FA KA OP [T NFIA NUT] FA KA OP [ $800 $200 $0] [$750 $150] $100 0 f. Calculate Ikonomia s gross national expenditure (GNE), gross national income (GNI), and gross national disposable income (GNDI). We know that GDP C I G (EX IM) GNE T GNE GDP T GNE $9,000 ( $800) GNE $9,800 GNI GDP NFIA GNI $9,000 ( $200) $8,800 GNDI GDP NFIA NUT GNI NUT. ecause NUT $0, GNDI GNI GNDI $8,800

12 Solutions Chapter 5(16) National and International Accounts S To answer this question, you must obtain data from the ureau of Economic Analysis (EA), on the U.S. balance of payment (OP) tables. Go to interactive tables to obtain annual data for 2008 (the default setting is for quarterly data). It may take you some time to become familiar with how to navigate the website. You need only refer to Table 1 on the OP accounts. Using the OP data, calculate the following for the United States: (Answers will vary because of data revisions. The figures below are based on those given in the Table 5-3 [16-3]: release date Septermber 19, 2013.) a. Trade balance (T), net factor income from abroad (NFIA), net unilateral transfers (NUT), and current account (CA) T $702 billion (Line 74) NFIA $146 billion (Line 75) NUT $125 billion (Line 76) CA $681 billion (Line 77) b. Financial account (FA) FA $730 billion (Lines ) c. Official settlements balance (OS), referred to as U.S. official reserve assets and Foreign official assets in the U.S. Official settlements balance $550 billion (Lines 41 56) d. Nonreserve financial account (NRFA) Nonreserve financial account $180 billion (Lines ) e. alance of payments (OP). Note that this may not equal zero because of statistical discrepancy. Verify that the discrepancy is the same as the one reported by the EA. OP CA FA KA $681 $730 $6 $55 billion (statistical discrepancy OP = $55 billion (Line 71) 6. Continuing from the previous question, find nominal GDP for the United States in 2008 (you can find it elsewhere on the EA site). Use this information along with your previous calculations to calculate the following: (Answers will vary because of data revisions. The figures below use data from NIPA Table as revised on September 26, It reports GDP = $14,720 billion.) a. Gross national expenditure (GNE), gross national income (GNI), and gross national disposable income (GNDI) We use the GDP reported above along with the data used in answering the previous question. GNE GDP T 14,720 ( 702) $15,422 billion; GNI GDP NFIA 14, $14,841 billion; GNDI GNI NUT $14, $14,716 b. In macroeconomics, we often assume the U.S. economy is a closed economy when building models that describe how changes in policy and shocks affect the economy. ased on the previous data (OP and GDP), do you think this is a reasonable assumption to make? Do international transactions account for a large share of total transactions (involving goods and services, or income) involving the United States? ased on calculations above, we see that GDP $14,720 billion, whereas the trade balance accounts for slightly less than 5% (T $702 billion). Similarly, if we compare the share of GNI ($14,841 billion) that is attributed to the current account (CA $681 billion), we can see that international transactions account for a relatively small share (about 4.5%) of U.S. income. Therefore, the assumption of a closed economy is not too problematic.

13 S-40 Solutions Chapter 5(16) National and International Accounts 7. During the 1980s, the United States experienced twin deficits in the current account and government budget. Since 1998, the U.S. current account deficit has grown steadily, along with rising government budget deficits. Do government budget deficits lead to current account deficits? Identify other possible sources of the current account deficits. Do current account deficits necessarily indicate problems in the economy? Twin deficits are possible, but there are other factors that influence the current account. Since 1998, the decline in the current account has been associated with movements in investment and national savings. Note the following expression from the textbook: CA S P S G I It is not clear that budget deficits cause current account deficits. There are two possibilities besides a budget deficit (S G 0): Private savings (S P ) may change when the government changes taxes (e.g., tax rates). Suppose tax rates decrease, causing a decrease in government saving. According to Ricardian equivalence, households will respond to a tax cut today by increasing savings in anticipation of a future tax increase needed to finance the current budget deficit. This implies private savings will increase, possibly offsetting the effect on national saving. The current account may move independently of saving, namely because of changes in investment (I). An increase in domestic investment opportunities could lead to current account deficits. 8. Consider the economy of Opulenza. In Opulenza, domestic investment of $400 million earned $20 million in capital gains during Opulenzans purchased $120 million in new foreign assets during the year; foreigners purchased $160 million in Opulenzan assets. Assume the valuation effects total $1 million in capital gains. Note that we need to assume a value for the capital account. We will assume KA 0 in the following transactions. a. Compute the change in domestic wealth in Opulenza. The change in domestic wealth is the sum of additions to the capital stock plus capital gains earned on domestic assets: Change in domestic wealth I Capital gains on K $400 $20 $420 million b. Compute the change in external wealth for Opulenza. The change in external wealth is: W Valuation effects ( FA) $1 ($160 $120) $39 million c. Compute the total change in wealth for Opulenza. The change in total wealth is: Change in total wealth Change in domestic wealth Change in external wealth $420 ( $39) $381 million d. Compute domestic savings for Opulenza. To calculate national savings, note that the change in total wealth is: Change in total wealth S KA Capital gains on K Capital gains on (A L) $381 S $0 ($20 $1) S $360 million

14 Solutions Chapter 5(16) National and International Accounts S-41 e. Compute Opulenza s current account. Is the CA in deficit or surplus? Using the current account identity: S I CA: S I CA $360 $400 CA CA $40 million Or, we could use the definition of the change in total wealth: Change total wealth I (CA KA) Capital gains on K Capital gains on (A L) $381 $400 CA $0 $20 $1 CA $40 million f. Explain the intuition for the CA deficit/surplus in terms of savings in Opulenza, financial flows, and its domestic/external wealth position. We see that Opulenza experienced a $420 million increase in its domestic wealth while losing $39 million in external wealth. Opulenza's investment is $400 million of which $360 million was financed through domestic savings and $40 million from foreign borrowings, which equals the current account deficit. The increase in domestic wealth is in addition (to the investment of $400 million) because of capital gains on domestic investment of $20 million. The decrease in external wealth of only $39 million instead of $40 million is due to its capital gains on foreign wealth of $1 million. g. How would a depreciation in Opulenza s currency affect its domestic, external, and total wealth? Assume that foreign assets owned by Opulenzans are denominated in foreign currency. The answer to this question depends on how Opulenzan external assets and external liabilities are denominated. Since all its foreign assets are in foreign currency a depreciation increases the value of its foreign assets and there is a valuation gain. If its liabilities are denominated in its own currency, then a depreciation does not affect its domestic currency value of liabilities. On the other hand, if its liabilities are also in foreign currency, then a depreciation has a negative valuation effect. The overall valuation effect will thus depend on the relative magnitude and currency composition of its liabilities. 9. This question asks you to compute valuation effects for the United States in 2004 using the same methods mentioned in the chapter. Use the bea.gov website to collect the data needed for this question: look under the International heading. Visit the EA s balance of payments data page and obtain the U.S. balance of payments for 2004 in billions of dollars. e sure to get the correct year, and annual data, not quarterly. Visit the EA's net international investment position data page and obtain the U.S. net international investment position for end 2003 to end Answers may vary based on data revisions. The data below were obtained in November 2007: a. What was the U.S. current account for 2004? CA $640,148 million b. What was the U.S. financial account for 2004? FA $556,742 million