Show how the following transactions are entered into the US balance of payments:

Question

Show how the following transactions are entered into the US balance of payments:

a.    A US resident imports $500 worth of goods from the UK and promises to pay in three months.

b.    The US government gives $100K cash balance in a US bank to a developing nation as part of the US foreign aid program.

c.     The US government gives $100K worth of food aid to a developing nation.

d.    A US resident purchases a $1000 foreign stock and pays for it by drawing down her bank balances abroad.

e.    A US resident receives a dividend of $100 on her foreign stock and deposits it in her bank account abroad.

f.     A foreign investor purchases $400 of US Treasury Bills and pays by drawing down his bank balances in the United States.

Explanation / Answer

a. A US resident imports $500 worth of goods from the UK and promises to pay in three months.

This transaction will include a credit entry on the capital account and in a debit entry under merchandise trade(because the U.S. firms agreement to pay $500 in three months will be categorised as a short-term asset)

b. The US government gives $100K cash balance in a US bank to a developing nation as part of the US foreign aid program.

The transaction will include credit to the capital and debits unilateral transfers by $100

c. The US government gives $100K worth of food aid to a developing nation.

This transaction will include a credit entry on the capital account and in a debit entry under merchandise trade

d. A US resident purchases a $1000 foreign stock and pays for it by drawing down her bank balances abroad.

The transaction will include a credit entry on the short-term capital account indicating the disposal of U.S. assets and a debit entry on the capital account (short-term) indicating the acquisition of a foreign stock by a U.S. resident

e. A US resident receives a dividend of $100 on her foreign stock and deposits it in her bank account abroad.

This transaction will include credit entry on the current account under income on investments (disposal of a service, loaning money to a foreign resident) and credit entry on the current account under income on investments (disposal of a service, loaning money to a foreign resident).

f. A foreign investor purchases $400 of US Treasury Bills and pays by drawing down his bank balances in the United States.

The transaction will include a $400 debit entry on the capital account and a $400 credit entry on the capital account for the disposal of a U.S.

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