Question

Suppose a country has a positive Net International Investment Position (NIIP). Only based upon this fact,...

Suppose a country has a positive Net International Investment Position (NIIP). Only based upon this fact, in a floating currency system you would expect that country's currency to _________ over time.

Group of answer choices

Weaken

Remain Unchanged

Strengthen

NIIP has no impact on currency movements

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Answer #1

The Net international investment position (NIIP) is difference between the external financial assets and liabilities of country. A positive NIIP value indicates that a nation is a creditor nation, while a negative value indicates that it is a debtor nation. The Net International Investment Position (NIIP) is stock of external assets minus stock of external liabilities. That is, it is the value of foreign assets owned by private and public sector of a country minus the value of domestic assets owned by foreigners

Exchange rates have a significant impact on the prices you pay for imported products. A weaker domestic currency means that the price you pay for foreign goods will generally rise significantly.

A country using more foreign/ imported assets will weaken its domestic currency. So, in a floating currency system you would expect that country's currency to __Weaken_______ over time

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