Nanyang Technological University School of Humanities and Social Sciences HE206 - INTERNATIONAL MONETARY ECONOMICS TUTORIAL 1:

Question 1 The nation of Pecunia had a current account deficit of $1 billion and a non-reserve financial account surplus of $500 million in 2008. a. What was the balance of payment or the official settlement balance of Pecunia in that year? What happen to the countrys net foreign assets? b. Assume that the foreign central banks neither buy nor sell Pecunia assets. How did the Pecunia central banks foreign reserves change in 2008? How would this official intervention show up in the balance of payments accounts in Pecunia? c. How would your answer to (b) change if you learned that foreign central banks had purchased $600 million of Pecunia assets in 2008? How would these official purchases enter foreign balance of payments accounts? Question 2 Can you think of any reasons why a government might be concerned about a large current account deficit or surplus? What might a government be concerned about its official settlement balance (i.e., its balance of payments)?