Some nations use external financial assets as a buffer and a precautionary measure to:
A) allow their net external balance to average to zero over time.
B) ensure that if they must default on debt, foreigners cannot confiscate assets.
C) reduce or eliminate the need to go into debt to smooth consumption.
D) find new investment opportunities in the domestic market.

Question

Quizplus · Accepted Answer

Nations use external financial assets as a precautionary measure to reduce or eliminate the need to go into debt to smooth consumption. By holding external financial assets, a country can use them to finance deficits during short-term shocks without having to borrow from foreign sources, which can be costly and increase their vulnerability to financial crises.

Some Nations Use External Financial Assets as a Buffer and a Precautionary