Question

Suppose the U.S. foreign assets are 70 percent of the U.S.​ GDP, and the U.S. foreign liabilities are 99 percent of the U.S. GDP. ​ Moreover, suppose that 62 percent of U.S. foreign assets are denominated in foreign​ currencies, while all liabilities to foreigners are denominated in U.S. dollars.  

How will a 15 percent depreciation of the dollar affect ​foreigners' net foreign claims on the U.S. measured in U.S. dollars​ (as a percent of U.S.​ GDP)?  ​(You will need a calculator. Round your answer to the whole percentage​ point, no decimals​.)

Foreigners will experience a net capital LOSS equal to what percent of U.S. GDP?

Answer 1

U.S. foreign assets = 70 percent of the U.S.​ GDP,

U.S. foreign liabilities = 99 percent of the U.S. GDP. ​

Percentage of U.S. foreign assets denominated in foreign​ currencies = 62. Percentage of U.S. foreign assets denominated in US dollars = 38.

Percentage of U.S. liabilities to foreigners denominated in U.S. dollars = 100

Foreigners' net foreign claims on the U.S. = U.S. foreign liabilities - U.S. foreign assets

= 99% * 100% * 15% - 70% * 38% * 15%

= 11%

Hence, when USD depreciates by 15%, Foreigners' net foreign claims on the U.S decreases by 11 percent.

Foreigners will experience a net capital LOSS = 11%