Q1: BOP and NFA (30 marks) Suppose a country is represented by a household. The basic: Only two members, You and Xiaomi You are the authority, who can issue the currency RMB. RMB is used for domestic transaction At the beginning of 2020, the authority have Foreign asset 10kg gold, and foreign liability 6000 RMB. The private sector (Xiaomi) have Foreign asset 2 kg gold, and foreign liability 2000 RMB. Let us assume that the exchange rate is 1kg Gold=500 RMB. There is no statistical errors and no changes of the capital accounts. Question 1a) What is the whole household total Foreign asset and Foreign liability at the beginning of 2020? And what is the initial net foreign asset? Question 1b) During 2020, the national income account shows that CA=-2kg Gold. Consequently, the household depletes it net foreign wealth. Can you figure out: what is the consequence on the household's NFA? Question 1c) The incremental wealth may be held by Xiaomi (Private sector) or Your (authority) If Xiaomi increases the position of Gold by -0.4 kg Gold (The non-official reserve part) Can you figure out: what is the balance of official settlement? Question 1d) At the end of th year, exchange rate turns out to be 1kg Gold=750 RMB. Can you check what is the valuation effect? And what is the net foreign asset in the end of 2020? (Hint: changes of NFA includes the valuation change and the current account).