At the beginning of 2014 Country A\'s Net International Investment Position is -

Question

At the beginning of 2014 Country A's Net International Investment Position is - at book (or accounting) value - equal to $1000. During 2014 Country A's residents purchase shares in Country B's stock market for $500, and Country A's government sells treasury bonds to Country B's residents for $500. Country A's Current Account Balance in 2014 and 2015 is $1000, and no other financial account entries are recorded in Country A's balance of payments. At the end of 2015, however, Country B's shares owned by Country A residents have increased their value by 10%, while the Country A's treasury bonds owned by Country B's residents have lost 5% of their original market value.

1. What is the market value of Country A's Net International Investment Position at the end of 2015?

2. How would your answer change if Country B's shares owned by Country A residents decreased their value by 10%, while the Country A's treasury bonds owned by Country B's residents lost 5% of their value?

Explanation / Answer

Ans 1:

Market value of Country A's Net International Investment Position at the end of 2015

=$ 1000+(500+10%)-500=1550-500=1050

Ans 2:

if Country B's shares owned by Country A residents decreased their value by 10%, while the Country A's treasury bonds owned by Country B's residents lost 5% of their value?

=$ 1000+(500-10%)-500=1000+450-500=950

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