What would happen to a low-income nation if its liability currency appreciated against its own currency?
A) Its external wealth would rise because low-income nations have more assets than liabilities.
B) Its external wealth would not be affected because currency values are fixed.
C) Its external wealth would fall because low-income nations tend to have more external liabilities denominated in other currencies.
D) Its external wealth would rise because of the ability of its monetary authority to print more money.

Question

Quizplus · Accepted Answer

If a low-income nation's liability currency appreciates against its own currency, it means that the nation's external liabilities denominated in that currency would increase relative to its external assets. Since low-income nations tend to have more external liabilities denominated in other currencies, the appreciation of the liability currency would lead to a decrease in the nation's external wealth.

What Would Happen to a Low-Income Nation If Its Liability