Question

The balance of payments consists of three accounts which together record the flow of money into and out of a country. The current account records the sale and purchase of goods and services, the capital account records the sale and purchase of financial assets, and the official settlements (OS) account records changes in government holding of foreign currencies. Anything that brings domestic currency into the country is recorded as a positive while anything that sends domestic currency out of the country is a negative. Based on this description, identify which UAE account (current, capital, or OS) each transaction would be included in and whether it would be positive or negative.

a) A petrol station in Iceland buys 3,000 liters of petrol from ADNOC

b) The UAE government sells 1 million US dollars.

c) The UAE government lends 1 billion euros to the Greek government

Answer 1

a) It will recorded in current account records and it recorder as a positive, ( because this transaction take place to purchase of good from Iceland and thus it is recoder in current account as a positive .

b) It will recorded in the official settlement records ( because this transaction includes selling of foreign currencies and it will recoder in official settlement account .

c) It will recorder in the financial assets account. ( because it deal in the financial assets. The UAE government lend his assets to Greek government .)