Suppose that hypothetically there are only two countries in the world: Japan and South Korea Now suppose that at the end of year 2, Japan has positive net exports of $20 billion against South Korea. In addition, Japan has earned $1 billion in interest from its South Korean assets over the course of year 2. Question: What are the respective balances for the current account, and the financial and capital account for Japan at the end of year 2

i) $21 billion

ii) $0

iii) $0

Explanation:

GIVEN DATA : ( two countries )

At the end of year 2

net exports = $20 billion for Japan

Interest earned from assets = $1 billion  for Japan

i) The balances for the current account for Japan

export value + interest earned from assets

= $20 billion + $1 billion = $21 billion

ii) Financial account for Japan

Financial account for Japan will be zero because there is no increase or decrease in number of  its assets within the given period

iii) capital account for Japan

Capital account of Japan will will have a zero balance. this is because Capital account is used to record  foreign investments, local  investment and the reserve account as well. and there was no investment captured within the given time that was made by Japan

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