We have two countries, China and Nambia, with a fixed exchange rate trading at 1 yuan = 20 Nambian dollars (N$). Last year, China. bought 200 billion N$ worth of goods, services and financial assets from Nambia, while Nambia bought 5 billion yuan from the China. 

 

1. What is the value of the Chinese balance of payments deficit?

2. What is the value of the Nambian balance of payments surplus?

3. What will both the Chinese and Nambian governments do in response (keeping in mind there is a fixed exchange rate system in both countries)?

  

4. What effect will this have on domestic prices in China and Nambia?