Answer :

Terri is quite thirsty. She would assert, if asked, that just now a glass of water is more important than any food. This is a nice example of the valuing effect.

The valuation impacts of a nation are determined by subtracting the value changes of local assets owned by foreign investors from changes in the value of assets held abroad.

The conventional balance of payment identity only acknowledges that changes in net foreign assets (NFA) are completely represented by the current account and excludes valuation impacts.

Given a remarkable, abrupt increase in worldwide cross-country portfolio holdings over the last two decades, valuation impacts have become more significant for the U.S. The United States' current account deficits are partially offset by valuation effects, which prevent the loss of its net foreign assets.

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