Question

1.     You are given the following information about a country’s international transactions during a year:

Item	Value ($ millions)
Exports	526
Imports	402
Net Income from Foreigners	3
Net Unilateral Transfers	-8
Net Increase in the Country's Holding of Foreign Assets (excluding official reserves)	202
Net Increase in Foreign Holdings of the Country's Assets (excluding official reserves)	102
Net Statistical Discrepancy	4

a.     Please calculate the country’s net exports.

b.     Please calculate the country’s current account balance.

c.     Please calculate the country’s official settlements balance.

d.     What is the value of the net change in official reserves assets? Is the country increasing or decreasing its net holdings of official reserve assets?

Answer 1

a) Net exports = Exports - Imports = 526 - 402 = $124 millions

b) Current Account balance = Net export + Net Income from Foreigners + Net Unilateral Transfers

                                             = 124 + 3 + (-8) = $119 million

c) Official settlement balance = Current Account ba lance + (Net Increase in the Country's Holding of Foreign Assets - Net Increase in Foreign Holdings of the Country's Assets)

                                              = 119 + (202-102) = $219 million

d) Current Account balance + (Net Increase in the Country's Holding of Foreign Assets - Net Increase in Foreign Holdings of the Country's Assets) + Net Statistical Discrepancy + Official Reserves = 0

Official Reserves (OR) = - [Current Account balance + (Net Increase in the Country's Holding of Foreign Assets - Net Increase in Foreign Holdings of the Country's Assets) + Net Statistical Discrepancy]

                    Net change = - [119+(202 - 102) + 4]

                                      = - $223 million

Since net change in Official Reserves is negative, the country is decreasing its net holdings of official reserve assets.