Answered: Home’s currency, the peso, currently…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter11: Foreign Exchange, Trade, And Bubbles

Section: Chapter Questions

Problem 7MC

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Home’s currency, the peso, currently trades at an exchange rate of 1 peso per dollar. Home has external assets of $320 billion, 100% of which are denominated in dollars. It has external liabilities of $800 billion, 90% of which are denominated in dollars.

a. What country in Latin America does “Home” reminds you of?

b. Is Home a net creditor or debtor? What is Home’s external wealth measured in pesos?

c.What is Home’s net position in dollar-denominated assets, measured in pesos? And what is it measured in U.S. dollars?

d. If the peso depreciates to 1.2 pesos per dollar, what is the change in Home’s external wealth in pesos?

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