When there are currency depreciations or appreciations, how is the external wealth of a nation affected?
A) It rises (along with its GDP) when there is a depreciation and falls with an appreciation.
B) It usually does not change because external wealth is related to gold and capital.
C) The change in wealth depends on the exchange rates with the currencies in which the assets or liabilities are denominated.
D) If all assets are domestic and all liabilities are foreign, wealth always rises when there is any kind of exchange rate shift.

Question

Quizplus · Accepted Answer

The change in external wealth of a nation depends on the exchange rates with the currencies in which the assets or liabilities are denominated. If a country's assets are denominated in a stronger currency than its liabilities, a depreciation of its own currency would lead to an increase in external wealth. However, if the opposite is true, a depreciation would lead to a decrease in external wealth. Similarly, an appreciation of the country's currency could either increase or decrease external wealth depending on the currency denominations of its assets and liabilities. Therefore, the change in external wealth is not solely determined by the direction of the currency shift, but rather, by the specific exchange rates involved.

When There Are Currency Depreciations or Appreciations, How Is the External