Question

Discuss the effect of the following transactions on the US Balance of Payments (BOP):

Suppose a US resident who has invested in UK government bonds (gilts). Each year, he receives
£10,000 of coupon payments. Suppose these payments are directly paid into his UK bank account.

Answer 1

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The solution of the above question is,

When the USA resident invested in the UK government bonds. then it is a negative effect on the Balance of payment because the money goes from the USA capital account to UK capital account.

Receive 10000 coupon payment as a dividend. in UK bank account. That Money belongs to USA Resident so, it creates a positive effect on the Balance of payment of the USA because the money goes to the USA capital account from UK capital account.