The nation of Pecunia had a current account deficit of $1 billion and a nonreserve financial account surplus of $500 million in 2008.
a. What was the balance of payments of Pecunia in that year? What happened to the country’s net foreign assets?
b. Assume that foreign central banks neither buy nor sell Pecunian assets. How did the Pecunian central bank’s foreign reserves change in 2008? How would this official intervention show up in the balance of payments accounts of Pecunia?
c. How would your answer to (b) change if you learned that foreign central banks had purchased $600 million of Pecunian assets in 2008? How would these official purchases enter foreign balance of payments accounts?
d. Draw up the Pecunian balance of payments accounts for 2008 under the assumption that the event described in (c) occurred in that year.