HW 4 (100 Points)( Due Date: December 2nd – Wednesday – Beginning of Class )(Q.1)How are the following transactions entered into the U.S. balance of payments?(a)(b)(c)The U.S. government sends $2,000 worth of food aid to Africa.A U.S. firm exports $10,000 worth of goods to the United Kingdom, payablein 3 months.A U.S. tourist in Amsterdam spends $200 for food and hotels.(Q.2)Classify the following transactions in the Mexican balance of payments.(a)(b)(c)(d)A Mexican auto parts manufacturer sells Ps500,000 of parts to a US firm, allowing 30days credit until payment is due.The US gives Ps10,000,000 of corn to Mexico to help feed earthquake victims in MexicoCity.A US tourist travels to Mazatlan, Mexico and spends Ps10,000 on hotels and tequilawhile on vacation. He pays with a check drawn on a Phoenix, Arizona bank.Senor de la Madrid in Mexico City receives Ps80,000 in interest from a deposit in aHouston, Texas bank. He deposits the Ps80,000 in Bank of America in San Francisco..(Q.3)What is the value of the current account in the preceding problem?(Q.4)Use the information in the following table on Switzerland’s 1998 international transactions toanswer the questions below (amounts are millions of U.S. dollars):Balance of Payments AccountMerchandise importsMerchandise exportsServices importsServices exportsInvestment income receiptsInvestment income paymentsUnilateral transfers(a)(b)(c)Amount$92,871$93,859$15,406$26,683$43,720$27,702-$ 3,736What is the balance of trade?What is the current account?Did Switzerland become a larger international net creditor during 1998?(Q.5)The Swiss franc is selling in the spot market for $0.60, while in the 90-day forward market it sells for $0.62a) Is the dollar selling at a premium or discountb) What is the forward premium (discount) on the franc (at an annual rate)(Q.6)The 1-year interest rate on Swiss francs is 5 percent, and the dollar interest rate is 8 percenta) If the current $/SF spot rate is $0.6, what would you expect the spot rate to be in 1 yearb) Why is there no observable expected future spot rate?c) Suppose U.S. policy changes and leads to an expected future spot rate of $0.63. What would youexpect the dollar interest rate to be now? (Assume no change in the swiss interest rate)(Q.7)The 1-year interest rate in the US is 10 percent; in Switzerland, it is 12 percent. The current spot rate(dollars per franc) is $0.4.a) What do you expect the 1-year forward rate to be?b) Is the franc selling at a premium or a discount?c) If the expected spot rate in 1-year is $0.38, what is the risk premium?