Question

Show (using the credit/debit tables) how each of the following would affect the U.S. BOP. Your records should include a description of the transaction being recorded, which specific account is affected (e.g., exports [EX], home financial account assets [EX^H_A], etc.), and the accompanying credit/debit entry.

a. A U.S. airplane manufacturer imports $500,000 in parts from a Canadian firm. It uses a U.S. bank account to pay for the parts.

b. An Italian tourist charges $600 to his Mastercard (issued by an Italian bank) for a hotel room in New York City.

Answer 1

A. Us airplane manufacturer imports 500000 dollar in parts from a Canadian firm. It uses a bank account to pay for the parts.

This will be recorded on debit side of the current account of BOP. This is considered as import of visible items. imports are treated as negative items as these items results in outflows of foreign exchange.

Side : Debit item ( Negative item)

Items: import of visible items

Current account of BOP.

B. an Italian tourist charges $600 to his master card for a hotel room in the New York city.

It is recorded on credit side of the current account of balance of payment. This is considered as export of invisible items. these are created as positive items as such items result in inflows of foreign exchange.

Side : Credit side of BOP

Items: export of invisible items

Current account of BOP.