To answer, first read the article entitled “Canadians continue to invest abroad,” which appeared on February 26, 2002, in “La Presse” (Montréal).
Excerpt from the article:
“Over the last two years, Canadians have wagered almost $100 billion on foreign stocks and bonds. That is two times more than the $49.7 billion that foreigners have invested in this country during the same period.”
This excerpt deals with two transactions that are entered on the Canadian balance of payments.
a) When entering the $100 billion mentioned in the article, which sign goes in front of the figure: a plus or minus sign? Explain. (4 points)
b) When entering the $49.7 billion, which sign goes in front of the figure? Explain. (4 points)
c) Are these two transactions entered as a current account balance or a capital account balance? (3 points)
d) Which of the above diagrams best depicts the effect of these net flows on the value of the Canadian dollar? Explain. (6 points)