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Suppose that Argentina's dollar-denominated external assets and liabilities are $20 billion and $80 billion, respectively, and...

Suppose that Argentina's dollar-denominated external assets and liabilities are $20 billion and $80 billion, respectively, and its Argentine peso-denominated external assets and liabilities are each 50 billion pesos (P). Suppose further that Argentina fixes its exchange rate at P1.5 = $US1. What is the peso value of Argentina's total external wealth?

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Answer #1

Dollar-denominated external wealth = External assets - External liabilities = $20 billion - $80 billion = - $60 billion

Peso-denominated external wealth = External assets - External liabilities = P50 billion - P50 billion = P0 billion

Peso value of Dollar-denominated external wealth = = - $60 billion x P1.5 / $ = - P90 billion

Peso value of total external wealth = Peso value of Dollar-denominated external wealth + Peso-denominated external wealth

= - P90 billion + P0 billion

= - P90 billion

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