HOW TO DO?
2. (20 marks) The balance of payments accounts of a hypothetical economy, Democracy for the
year 2013 is as follows. Assume no statistical discrepancy. - Current account: $1000 million -
Nonreserve financial account (NFA): - $850 million - Capital account: $75 million - Trade balance:
$700 million - Net unilateral transfers: - $50 million - External wealth: $1295 million a. (4 marks)
Calculate Democracy's financial account balance. Is Democracy a net exporter or a net importer of
assets? b. (4 marks) Calculate the official settlements balance for Democracy. Use hypothetical
figures to show the breakdown of the official reserve transactions. Based on the figures you
constructed, does the Central Bank of Democracy experience a decrease or an increase in its
foreign reserve holdings? c. (4 marks) Is Democracy a net lender or a net borrower? Explain how
you know. d. (4 marks) Show the values of three sources of the change in external wealth. Which
one appears to be most important for Democracy? e. (4 marks) Suggest two measures to help
Democracy correct the current account balance..
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HOW TO DO 2 20 marks The balance of payments accounts of.pdf
1. HOW TO DO?
2. (20 marks) The balance of payments accounts of a hypothetical economy, Democracy for the
year 2013 is as follows. Assume no statistical discrepancy. - Current account: $1000 million -
Nonreserve financial account (NFA): - $850 million - Capital account: $75 million - Trade balance:
$700 million - Net unilateral transfers: - $50 million - External wealth: $1295 million a. (4 marks)
Calculate Democracy's financial account balance. Is Democracy a net exporter or a net importer of
assets? b. (4 marks) Calculate the official settlements balance for Democracy. Use hypothetical
figures to show the breakdown of the official reserve transactions. Based on the figures you
constructed, does the Central Bank of Democracy experience a decrease or an increase in its
foreign reserve holdings? c. (4 marks) Is Democracy a net lender or a net borrower? Explain how
you know. d. (4 marks) Show the values of three sources of the change in external wealth. Which
one appears to be most important for Democracy? e. (4 marks) Suggest two measures to help
Democracy correct the current account balance.
