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Author Question: How can changes in the market price of wealth previously acquired alter a country's net foreign ... (Read 107 times)

luvbio

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on: Jun 30, 2018
How can changes in the market price of wealth previously acquired alter a country's net foreign wealth?
 
  What will be an ideal response?

Question 2

Find the real exchange rate for the following case: Assume that the representative basket of European goods costs 100 euros and the representative U.S. basket costs 125,
 
  and the dollar/euro exchange rate is 0.75 per euro, then the price of the European basket in terms of U.S. basket is:


snackralk

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Reply #1 on: Jun 30, 2018
Answer to Question 1

When Japan's stock market lost value in the 1990s, American and European owners of Japanese asset lost value in their claims, while Japan's net foreign wealth increased. Similarly, exchange rate changes can have this effect. When the dollar depreciates against foreign currency, foreigners who hold dollar assets will see their wealth fall when measured in their home currencies.

Answer to Question 2

(0.75 /euro) (100 euro per a European basket)/(125 /U.S. basket) = 0.60 U.S. baskets/European basket.


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luvbio

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Reply #2 on: Jun 30, 2018
Thank you :)


snackralk

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Reply #3 on: Jun 30, 2018
Happy to help you


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