Take the following description of the Canadian International Investment Position. Canada holds bond and equity liabilities and assets. All assets are in Canadian

dollars. All liabilities are in US dollars. In period t=0, the price of the US dollar is 1, the price of Canadian equity is 1, and the price of US equity (in US dollars) is 1. In period t=1, the Canadian dollar depreciates to 1.2, the price of US equity rises to 1.5, and the price of Canadian equity stays at 1.

Table 1. Canadian International Investment Position

Date Assets Bonds Assets Equity Liabilities Bonds Liabilities Equity

t = 0 100 200 200 300

t = 1 150 200 300 300

a) What is the NIIP in period t=0 and in period t=1 (using all the price and exchange

rate changes between the two periods)?

b) What is the current account position between period t=0 and period t=1 (i.e. for

original asset and currency prices)?

c) What size are the valuation gains/losses in the assessment of the change in NIIP

between period 0 and 1?