Assume that there are two countries: USA and Europe. The exchange rate is currently $1/Euro. The US currently has external assets whose dollar value is $5000 and external liabilities with a dollar value of $10,000. Assume that 70 percent of US external assets in Europe are denominated in Euros (the remaining 30 percent are in dollars) and 80 percent of US external liabilities to Europe are denominated in dollars (the remaining 20 percent are in Euros).

Assume that the exchange rate remains $1/Euro, but the value of all European assets goes up by 20 percent, while the value of US assets remains unchanged. Compute the new net foreign asset position.

Answer rating: 100% (QA)

Calculation of Net Foreign Asset Position The new net foreign asset position for the US can be compu... View the full answer