Question

The following questions ask you to show how carious transactions shouw up in the United States balance of payments. Remember that each transaction generates two equal offsetting entries. You should classify each transaction into the following types, putting a + sign next to credit and a - sign next to a debit (i.e. A+ , B-

a. merchandise account (current account)

b. service trade (currecnt account)

c. investment income (current account)

d. unilateral transfers (current account)

e. US acquistion of foregin assets (financial account)

f. US incurrence of foregin liabilites (financial account)

1. an american firm exports skis in exchange for Yen

2. another U.S. firm gives Juan Antonia Samanch (a citizen of Spain) two antique shotguns as a gestrue of goodwill

3. an american citizen trades yen for euros with a german citizen

4. an american citizen is paid interest on his mexican ponds in pesos

5. the american citizen then buys a mexican car (from a mexican firm) with the pesos

Answer 1

1) This is an element in the current account under the (A) Merchandise trade. Skis are the physical goods and therefore form part of the current account.

2) This will be an item under the unilateral transfers (D). In this class all the goods are included.

3) This will be an item under the Financial Account also known as capital account. This is an item under (E). US acquiring Yen which is a foreign exchange.

4) This also falls under (E). Foreign exchange in earned.

5) This falls under (A), Merchandise export.