Question

A country has I = $200 billion, S = $400 billion, and purchased $600 billion of foreign assets, how many of its assets did foreigners purchase?
a. $800 billion
b. $0
c. $200 billion
d. $400 billion

Answer 1

In the context of international finance, the formula for the net capital flow can be expressed as:

\[
I - S = \text{Net Foreign Investment}
\]

where:
- \(I\) is the investment in the country,
- \(S\) is the savings in the country.

In this scenario:

- \(I = 200\) billion
- \(S = 400\) billion

So, we calculate the net foreign investment:

\[
I - S = 200 - 400 = -200 \text{ billion}
\]

A negative value indicates that the country is a net lender, meaning it is investing more abroad than it is receiving from foreign investors.

Additionally, it's mentioned that the country purchased \(600\) billion of foreign assets. To find out how many assets foreigners purchased in this country, we can use the relationship between domestic investment and foreign investments.

From the investment perspective, we can write:

\[
\text{Foreign Asset Purchases} = \text{Domestic Investment} + \text{Net Foreign Investment}
\]

Rearranging gives:

\[
\text{Foreign Asset Purchases} = I + (S - I)
\]

In this case, since they are a net lender:

\[
\text{Foreign Asset Purchases} = 200 + (-200) = 0
\]

Thus, the total amount of assets foreigners purchased in this country is:

**b. $0 billion**