Problem Set 1(Due Thursday, Feb XXXXXXXXXXpoints XXXXXXXXXXpoints)Explain how each of the following transactions generates two entries—a credit and adebit—in the American balance of payments...

Problem Set 1(Due Thursday, Feb. 25)(100 points)1. (20 points)Explain how each of the following transactions generates two entries—a credit and adebit—in the American balance of payments accounts, and describe in what categoryof the balance of payments (i.e. which account) each entry would be classified.a. An American buys a share of German stock, paying by writing a check on anaccount with a Swiss bank.b. An American buys a share of German stock, paying the seller with a check on anAmerican bank.c. The Korean government carries out an official foreign exchange intervention inwhich it uses dollars held in an American bank to buy Korean currency from itscitizens.d. A tourist from Detroit buys a meal at a restaurant in Lyon, France.e. A U.S.-owned factory in Britain uses local earnings to buy additional machinery.2. (10 points)Explain the difference between the two kinds of flows of capital abroad.3. (20 points)Explain why NFI = NX.4. (20 points)Describe and explain the long-run implications of the Feldstein-Horioka Hypothesisfor the current account.5. (30 points)EuroDisney, near Paris, conducts its operations in euros. However, assume that nextyear Disney plans to undertake a major expansion of Disney World in Orlando, andwill need to utilize money from EuroDisney to help fund the project. Of course, theAmerican project must be paid for in dollars.a. Explain what forex risk Disney faces in utilizing the European funds.b. Explain how, using derivatives, Disney could hedge the forex risk they face.