Question

7. For each pair of transaction below, indicate whether they would be recorded in the current account or capital account in the U.S. Balance of Payments accounts. Write CURRENT, CAPITAL, or NOT RECORDED in the space provided below each transaction.

7A. U.S. produced computer is exported; foreign produced shoes are imported.

7B. U.S. citizen earns income from a job in a foreign nation; foreign citizen earns dividends on ownership of shares of stock in a U.S. company

7C. U.S. citizen buys shares of stock in a foreign company; foreign government buys U.S. Treasury securities

7D. U.S. citizen buys a vacation home in another country; foreign citizen buys an office building in the U.S.

Answer 1

7A

Exports and imports of goods and services is taken in the current account in the Balance of Payment Account.

So,

This transaction would be recorded in the current account in the US Balance of Payment Account.

7B

income receipts and investment income payments are recorded in the current account.

So,

This transaction would be recorded in the current account in the US Balance of Payment Account.

7C

Sale of stocks and bonds to foreigners and purchase of stocks and bonds in foriegn countries is taken in capital account.

So,

This transaction would be recorded in the capital account in the US Balance of Payments Account.

7D

Purchase of physical assets in foriegn countries and sale of physical assets to foriegners is taken in capital account.

So,

This transaction would be recorded in the capital account in the US Balance of Payments Account.