Suppose we consider a hypothetical country X that uses the dollar as its currency. Further, assume it has a  current account (CA) deficit of $500 billion and a private non-reserve financial account (NRFA) surplus of  $250 billion. Again, we ignore the capital account and net errors and omissions here.

(a) What is X’s official settlements balance (OSB)?

(b) Is X’s net foreign asset position rising or falling?

(c) Assume that foreign central banks are neither buying nor selling any claims they might hold on X. What  can we infer is happening to the X central bank’s foreign exchange reserves? That is, is X buying or selling  foreign exchange reserves and how much?

(d) Now, suppose we learn that a foreign central bank (say the U.S. Fed) has purchased $300 billion of X  assets over the past year. How does this change the answer we gave to part (c)? Can you summarize the  balance of payments accounts in this scenario?

Answer rating: 100% (QA)

Given current account deficit 500 billion Private nonreserve financial account surplus 250 billion Private nonreserve financial account is the net cha... View the full answer