Exercise 1 If a country has problems borrowing resources in its own currency, economists say that this country suffers from original sin.

a. Why do emerging economies, in general, suffer from original sin? What are the consequences in practical terms?

b. What are the alternatives for an emerging economy suffering from original sin to deal with the problem? What are the associated advantages and disadvantages?

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c. In this item you will have the opportunity to analyze empirical data with the goal of measuring original sin based on real data for assets issued abroad by several countries.

Based on data available on the BIS Internet page (Bank of International Settlements), create two distinct groups of countries. The first should be composed of advanced economies, such as the United States, Canada, Japan, the United Kingdom, and member countries of the Eurozone. The second should be composed of emerging economies, such as Brazil, India, China, Russia, and others. What was the total value of debt issued by each group of countries in 2012 and the value issued in their own currency? What conclusions can you draw based on an analysis of this information?

d. Continuing within the context of the previous item, consolidate and organize the information collected for three distinct periods of time, being the first from 1993 to 1998, the second from 1999 to 2006, and the third from 2007 to 2012. What conclusions can you draw based on the consolidated results for these three periods, for each group of countries? Can you find a change in the standard of indebtedness for these economies?

Explain your answer.