Question

28. Assume the US has the following activities in a year.

1. Americans invested $35m in German common stocks.

2. Brazilian visitors spent $42m visiting Orlando Theme Parks.

3. A Japanese investor bought a hotel in Florida for $60m

4. Dell sold $12m worth of computers to Mexico

5. American banks paid $15m in interest to British investors.

6. Japanese investors bought $18m worth of U.S. Treasury Bond

Please calculate the (a) Balance on Current Account, (b) Balance on Capital Account, and (c) Balance on the Official Reserves.

Answer 1

(A) Current Account:

Brazilian visitors spent $42m visiting Orlando Theme Parks = +$42m

Dell sold $12m worth of computers to Mexico = +$12m

American banks paid $15m in interest to British investors = -$15m

The total balance in current account = +$39m

(B) Capital Account:

Americans invested $35m in German common stocks = -$35m

A Japanese investor bought a hotel in Florida for $60m = +$60m

Japanese investors bought $18m worth of U.S. Treasury Bond = +$18m

The total balance in capital account = +$43m

(C) official reserves account:

Balance of payments = current account + capital account + official reserves account

For a country , BOP should be zero

Therefore, current account + capital account + official reserves account = 0

official reserves account = - current account - capital account

official reserves account = -43-39 = -$82m