3. The world consists of three countries only: X, Y, and Z. in 2010, Capital Accounts...

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3. The world consists of three countries only: X, Y, and Z. in 2010, Capital Accounts were zero in all countries. The Current

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Answer 1

Answer #1

(a)

Sum of current account balance in the three countries is zero. So,

CA_X + CA_Y + CA_Z = 0

10 - 5 + CA_Z = 0

5 + CA_Z = 0

CA_Z = - 5

(b)

To keep balance of payment balanced, in each country, sum of current account and financial account is zero.

In country X, financial account balance = - CA_X = - 10

In country Y, financial account balance = - CA_Y = - (-5) = 5

In country Z, financial account balance = - CA_Z = - (-5) = 5

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Answer 2

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