# Question & Answer: I already have an answer for question1 so I need to get the answers question 2, 3 and 4…..

I already have an answer for question1 so I need to get the answers question 2, 3 and 4

1. Outland starts 2015 with holdings of 100 shares of the German car company Volkswagen. These securities are denominated in euros. The rest of the world holds 200 units of dollar-denominated bonds issued by the Outlandian government. At the beginning of 2015, the price of each Volkswagen share is 1 euro and the price of each unit of Outlandian bond is 2 dollars. The exchange rate is 1.5 dollars per euro. Compute the net international investment position (NIIP) of Outland at the beginning of 2015.

Price of each Volkswagen share is 1 euro

Price of each unit of Outlandian bond is 2 dollars

Exchange rate is 1.5 dollars per euro

NIIP = Overseas assets owned by a nation – Value of domestic assets owned by foreigners

= \$300- \$150 = \$150

2. During 2015, Outland exports toys for 7 dollars and imports shirts for 9 euros. The rate of return on the Volkswagen shares was 5 percent International Macroeconomics, Chapter 1 39 and the rate of return on Outlandian bonds was 1 percent. Residents of Outland received money from relatives living abroad for a total of 3 euros and the government of Outland gave 4 dollars to a hospital in Guyana. Calculate the Outlandian trade balance, net investment income, and net unilateral transfers in 2015. What was the current account in that year? What is the Outlandian NIIP at the end of 2015 expressed in dollars.

3. Suppose that at the end of 2015, Outland holds 110 Volkswagen shares. How many units of Outlandian government bonds are held in the rest of the world? Assume that during 2015, all ﬁnancial transactions were performed at the beginning-of-year prices and exchange rate.

4. To answer this question, start with the international asset and liability positions calculated in the previous item. Suppose that at the end of 2015, the price of a Volkswagen share falls by 20 percent and the dollar appreciates by 10 percent. Calculate the end-of-year NIIP of Outland in dollars.

(2)

= 7 − 1.5 × 9

= −6.5 USD.

Income Balance

= 0.05 × 100 × 1.5 − 0.01 × 400

= 3.5 USD.

Net Unilateral Transfer

= 3 × 1.5 − 4 = 0.5 USD.

Current Account

= −2.5 USD.

NIIP

= −250 − 2.5

= −252.5 USD.

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(3)

Financial Account= 2 × x − 1.5 × (110 − 100) = −(Current Account) = 2.5

x = 8.75

Therefore, 208.75 units of bonds will be held by the rest of the world.

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(4)

(NIIP)

= 0.8 × (1.5 × 0.9) × 110 − 2 × 208.75

= −298.7