Consider the following information about a country’s

a.Merchandies trade balance (or goods balance) = 330–198=$132. Goods and services balance = (330+196)–(198+204)=$124.

CA balance=124+3–8=$119. Surplus on the CA.

b.CA+Financial Account+Capital Account = 0 (when the statistical discrepancy and official international reserves are included in the FA; note that the KA is not listed separately in the table – this amount is typically small and we’ll ignore it for the most part in this class.) CA+FA=119+(- 100)+4-23=0

(119 is the CA; -100 is the private FA; 4 is the statistical discrepancy; -23 gets us to zero). Therefore, changes in official international reserves = -23. The country is increasing its net holdings of official reserve assets (since it is a debit, the country is ‘importing’ official reserve assets).

c.Calculate the private Financial Account (FA) balance (i.e., without official reserve assets). FA=net change in foreign assets=102–202= -100. Notice that the 202 is a debit since it is an import of assets while the 102 is a credit since it is an export of assets. Deficit on the FA. The country is increasing its net foreign investment position. This means the country has increased its holdings of foreign assets more than foreigners have increased their holdings of domestic assets. The country is importing a net amount of foreign assets (with an equivalent outflow of capital). Another way to say this is the country is using its national saving to invest