Problem
1. Home's currency is the peso and trades at 1 peso per dollar. Home has external assets of $200 billion, all of which are denominated in dollars. It has external liabilities of $400 billion, 75% of which are denominated in dollars.
a. Is Home a net creditor or debtor? What is Home's external wealth?
b. What is Home's net position in dollardenominated assets?
c. If the peso depreciates to 1.2 pesos per dollar, what is the change in Home's external wealth in pesos?
2. Evaluate the empirical evidence on how currency depreciation affects wealth and output across countries. How does the decision of maintaining a fixed versus floating exchange rate regime depend on a country's external wealth position?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.