Country Z exports $5 million of goods and services and imports $5 million of goods and services a year. It also has $10 million of foreign currency denominated foreign assets and $5 million of local currency denominated foreign liabilities which earn 10% p.a. in their respective currencies.

If the price elasticity of exports is 0.5, and the elasticity of imports is (-)0.4.

What will happen to the current account if the exchange rate depreciates by 1%?

Answer rating: 100% (QA)

To determine the impact of a 1 exchange rate depreciation on the current account we need to consider ... View the full answer