Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Country Z exports $5 million of goods and services and imports $5 million of goods and services. It also has $10 million of foreign currency

image text in transcribed

Country Z exports $5 million of goods and services and imports $5 million of goods and services. It also has $10 million of foreign currency denominated foreign assets and $5 million of local currency denominated foreign liabilities both of which earn a fixed 5% return in their respective currencies. If the price elasticity of exports is 0.5 and the elasticity of imports is (-)0.4 what will happen to the current account if the exchange rate depreciates by 1%? Select one: O a. improves by $0.055 million O b. improves by $0.045 million c. it is unchanged O d. improves by $0.005 million e. worsens by $0.005 million Country Z exports $5 million of goods and services and imports $5 million of goods and services. It also has $10 million of foreign currency denominated foreign assets and $5 million of local currency denominated foreign liabilities both of which earn a fixed 5% return in their respective currencies. If the price elasticity of exports is 0.5 and the elasticity of imports is (-)0.4 what will happen to the current account if the exchange rate depreciates by 1%? Select one: O a. improves by $0.055 million O b. improves by $0.045 million c. it is unchanged O d. improves by $0.005 million e. worsens by $0.005 million

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Public Finance Lessons From The Past And Effects On The Future

Authors: Miguel-Angel Galindo Martin

1st Edition

1629481491, 978-1629481494

More Books

Students also viewed these Finance questions

Question

* What is the importance of soil testing in civil engineering?

Answered: 1 week ago

Question

Explain the concept of shear force and bending moment in beams.

Answered: 1 week ago