Answer Happy

True/False/uncertain 6. The rate of nominal depreciation is faster, the higher is the home coun- try's inflation rate relative to that of the forcign country and the faster is its rate of real depreciation. 7. Higher government debt in a small open economy is associated with lower net foreign assets. 9. Based on purchasing power parity the Canadian dollar is currently un- dervalued. 10. The forward exchange rate may contain a risk premium, and so it deviates from the market's expectation of the future nominal exchange rate. 11. A booming economy induces trade balance deficits, which increase the likehood of devaluation (or depreciation). 12. A currency could be overvalued if consumer prices are generally higher at home than abroad when compared in a common currency, or under- valued if these prices are lower at home. 13. The fact that there many theories of the current account is a great dis- advantage because it is very difficult to determine which theory is more important. 14. Before an international bank grants a loan to a foreign government, it must mainly consider the economic environment of the borrower coun- try.