Ps1 Solution

PS 1

1.

For current account part, net export is the main contributor which is -2.57% of GDP. The amount of import exceeds export lead to a negative net export. NFP is another important part (-1.60% of GDP), since both income receipts and income payment are negative. There is a negative NUT as well. So, CA is negative in 2012.

For KFA, there is a large net financial inflows in 2012, which is 4.53% of GDP. Although Canada increased assets abroad by 8.59% of GDP, but there are more foreign country invested in Canada, which is 13.12% of GDP. There is also a small net capital transaction, but it's not large enough to affect KFA.

Since CA is negative, Canada must sell of assists (borrowing), and it cause a positive KFA as we proved by data. Therefore, Canada is a net borrower in 2012.

Part 1. 2

a)

Considering Canada has a negative NIIP from 1981-2012, Canada is a net debtor to the rest of the world.

b)

From 1981 to 1990, "Other Canadian investment" is the largest part of Canadian International Assets although the proportion of this category decreased from 60% to roughly 40% during this period. From 1990 to 1997, "Canadian direct investment abroad" and "Other Canadian investment" are the most important parts with around 40% for each category. From 1997 to 2012, "Canadian direct investment abroad" become the largest category of assets, which raised to about 50% in 2004 and dropped to 40% in 2012. Which has to be pointed out is "Canadian portfolio investment" becomes the second largest part of assets with a proportion between25%-30% since 1999 and keep this trend until 2012.

The pattern of Canadian international liabilities is quite clear. From 1984-2012 the most important part of liabilities is "Foreign portfolio investment". Its proportion was over 50% in 1995, then it dropped to 38% in2007 and went back to 47% in 2012. "Other foreign investment" was the second large part before 1999. "Foreign direct investment" became the second largest part...