Question

12. When a U.S. resident increases her holdings of a foreign financial asset, this item is recorded as a:

a. credit entry in the U.S. current account.

b. debit entry in the U.S. current account.

c. credit entry in the U.S. capital account.

d. debit entry in the U.S. capital account.

13. When a foreign resident increases her holdings of a U.S. financial asset, the :

a. current account of the U.S. balance of payments will be credited.

b. current account of the U.S. balance of payments will be debited.

c. financial account of the U.S. balance of payments will be credited.

d. financial account of the U.S. balance of payments will be debited.

Please give the answer and EXPLAIN.

Answer 1

12. Option D

• Debit Entry refers to the Entry in the accounting book that increases an asset and decreases the liability.
• Capital account reflects the personal net income of each individual.
• Hence if any resident is holding more assets,then it means that he or she is making a debit Entry into their respective capital accounts.

13. Option C

• A credit entry refers to the entry into the accounting book that decreases an asset and increases liability.
• Whenever a foreign country holds the other country's financial asset,then that country's balance of payment account will be credited.
• When a foreign resident increases her holdings of a US financial asset,
• The financial account of the US balance of payments will be credited..