You are provided with the following information about a country's international transactions during a given year (in millions):Service exports$346Service imports$354Merchandise exports$480Merchandise imports$348Income flows, net$153Gifts to foreigners$142Increase in the country's holding of foreign assets, net (excluding official reserves assets)$352Increase in foreign holdings of the country's assets, net (excluding official reserves assets)$252Statistical discrepancy, net credit$154 Calculate the official settlements balance and the current account balance. Is the country increasing or decreasing its net holdings of official reserve assets? By how much?
What will be an ideal response?
POSSIBLE RESPONSE: The calculations are furnished as below:
Current account balance: $(346 - 354 + 480 - 348 + 153 - 142) = $135 million (surplus)
Official settlements balance: $(346 - 354 + 480 - 348 +153 - 142 + 252 - 352 + 154) = $189 million (surplus)
Here we see that the country's overall balance is in surplus. This has to be counterbalanced by an increase in the official reserve holdings.
Change in official reserve assets (net) = - official settlements balance = - $189 million
Thus, the country is increasing its net holdings of official reserve assets by $189 million.
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