Suppose that Argentina's dollar-denominated external assets and liabilities are $10 billion and $100 billion, respectively, and its Argentine peso-denominated external assets and liabilities are each 50 billion pesos (P). Suppose further that Argentina fixes its exchange rate at P1 = $US1. What is the dollar value of Argentina's total external wealth?
A) -$60 billion
B) -$150 billion
C) -$90 billion
D) -$210 billion

Question

Quizplus · Accepted Answer

To find the dollar value of Argentina's total external wealth, we need to convert the peso-denominated assets and liabilities into dollars using the fixed exchange rate of P1 = $1.

The dollar value of Argentine peso-denominated external assets is:
50 billion pesos / P1 = $50 billion

The dollar value of Argentine peso-denominated external liabilities is:
50 billion pesos / P1 = $50 billion

Therefore, the total dollar-denominated external assets are:
$10 billion + $50 billion = $60 billion

And the total dollar-denominated external liabilities are:
$100 billion + $50 billion = $150 billion

The difference between the external assets and liabilities is:
$60 billion - $150 billion = -$90 billion

This means that Argentina has a net external debt of $90 billion. Since this is a negative value, the correct answer is (C) -$90 billion.

Suppose That Argentina's Dollar-Denominated External Assets and Liabilities Are $10