NX and NCO and Foreign Investment Examples1. How would the following transactions affect U.S. exports, imports, and net exports?a. An American art professor spends the summer touring museums in Europe.b. Students in Paris flock to see the latest movie from Hollywood.c. Your uncle buys a new Volvo.d. The student bookstore at Oxford University in England sells a pair of Levi 501 jeans.e. A Canadian citizen shops at a store in northern Vermont to avoid Canadian sales taxes.ANSWERSa. When an American art professor spends the summer touring museums in Europe, he spends money buying foreign goods and services, so U.S. exports are unchanged, imports increase, and net exports decrease.b. When students in Paris flock to see the latest movie from Hollywood, foreigners are buying a U.S. good, so U.S. exports rise, imports are unchanged, and net exports increase.c. When your uncle buys a new Volvo, an American is buying a foreign good, so U.S.exports are unchanged, imports rise, and net exports decline.d. When the student bookstore at Oxford University sells a pair of Levi's 501 jeans, foreigners are buying U.S. goods, so U.S. exports increase, imports are unchanged, and net exports increase.e. When a Canadian citizen shops in northern Vermont to avoid Canadian sales taxes, a foreigner is buying U.S. goods, so U.S. exports increase, imports are unchanged, and net exports increase.2. Would each of the following transactions be included in net exports or net capital outflow?a. An American buys a Sony TV.b. An American buys a share of Sony tockc. The Sony pension fund buys a bond from the U.S. Treasury.d. A worker at Sony plant in Japan buys some Georgia peaches from an American farmer.ANSWERSa. When an American buys a Sony TV, there is a decrease in net exports.b. When an American buys a share of Sony stock, there is an increase in net capital outflow.c. When the Sony pension fund buys a U.S. Treasury bond, there is a decrease in net capital outflow.d. When a worker at Sony buys some Georgia peaches from an American farmer, there is an increase in net exports.3. How would the following transactions affect U.S. net capital outflow? Also, does the transaction involve direct investment or portfolio investment?a. An American cellular phone company establishes an office in the Czech Republic.b. Harrods of London sells stock to the General Electric pension fund.c. Honda expands its factory in Marysville, Ohio.d. A Fidelity mutual fund sells its Volkswagen stock to a French investor.ANSWERSa. When an American cellular phone company establishes an office in the Czech Republic, U.S. net capital outflow increases, because the U.S. company makes a direct investment in capital in the foreign country.b. When Harrod's of London sells stock to the General Electric pension fund, U.S. net capital outflow increases, because the U.S. company makes a portfolio investment in the foreign country.c. When Honda expands its factory in Marysville, Ohio, U.S. net capital outflow declines, because the foreign company makes a direct investment in capital in the United States.d. When a Fidelity mutual fund sells its Volkswagen stock to a French investor, U.S. net capital outflow declines (if the French investor pays in U.S. dollars), because the U.S. company is reducing its portfolio investment in a foreign country.4. Would each of the following groups be happy or unhappy if the U.S. dollar appreciated?a. Dutch pension funds holding U.S. government bonds.b. U.S. manufacturing industries.c. Australian tourists planning a trip to the United States.d. An American firm trying to purchase property overseas.ANSWERSa. Dutch pension funds holding U.S. government bonds would be happy if the U.S. dollar appreciated. They would then get more Dutch guilders for each dollar theyearned on their U.S. investment. In general, if you have an investment in a foreign country, you are better off if that country's currency appreciates.b. U.S. manufacturing industries would be unhappy if the U.S. dollar appreciated because their prices would be higher in terms of foreign currencies, which will reduce their sales.c. Australian tourists planning a trip to the United States would be unhappy if the U.S. dollar appreciated because they would get fewer U.S. dollars for each Australian dollar, so their vacation will be more expensive.d. An American firm trying to purchase property overseas would be happy if the U.S. dollar appreciated because it would get more units of the foreign currency and could thus buy more