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Chapter 10: Problem 5

What financial assets are categorized as official reserve assets for the United States?

Short Answer

Expert verified
The official reserve assets for the United States are its reserve positions and Special Drawing Rights (SDRs) in the International Monetary Fund (IMF), gold, foreign currencies, and U.S. reserve assets in other international financial institutions.

Step by step solution

01

Understanding official reserve assets

Official reserve assets are those foreign financial assets that are available to and controlled by country's monetary authorities. They can be used for direct financing of payment imbalances, for indirectly regulating the magnitudes of such imbalances via intervention in foreign exchange markets to affect the currency exchange rate, and/or for other purposes.
02

Identifying US official reserve assets

For the United States, official reserve assets in the International Monetary Fund (IMF) comprise reserve positions in the IMF and Special Drawing Rights (SDRs). Other important official reserve assets include gold, foreign currencies, and U.S. reserve assets in other international financial institutions.
03

Understanding each asset

Reserve positions and SDRs in IMF are based on the United States’ financial commitment to the IMF, which can be drawn up to meet balance of payment needs. Gold has been a traditional form of reserve asset. Foreign currency reserves are held in stable foreign currencies, typically the Euro and Japanese Yen. Additionally, the U. S. reserve assets in other international financial institutions also make up a portion of the official reserves.

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Most popular questions from this chapter

From a functional viewpoint, a nation's balance-ofpayments can be grouped into several categories. What are these categories?

What economic transactions give rise to the receipt of dollars from foreigners? What transactions give rise to payments to foreigners?

Indicate whether each of the following items represents a debit or a credit on the U.S. balance-of-payments: a. A U.S. importer purchases a shipload of French wine. b. A Japanese automobile firm builds an assembly plant in Kentucky. c. A British manufacturer exports machinery to Taiwan on a U.S. vessel. d. A U.S. college student spends a year studying in Switzerland. e. American charities donate food to people in drought-plagued Africa. f. Japanese investors collect interest income on their holdings of U.S. government securities. g. A German resident sends money to her relatives in the United States. h. Lloyds of London sells an insurance policy to a U.S. business firm. i. A Swiss resident receives dividends on her IBM stock.

What does the balance of international indebtedness measure? How does this statement differ from the balance-of-payments?

What is meant by the balance-of-payments?
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