1. Show how the following transactions are entered into the US balance of paymen
ID: 1113223 • Letter: 1
Question
1. 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
There are two components of balance of payment current acount and capital account
(a)current account records export and import of good and service and unilateral transfers.
(b)The capital account records all international transaction that involves a resident of a country concerned changing either his assests or his liabilities to a resident of another country .
CURRENT ACCOUNT
Transaction index
Credit(receipts)
Debit(payments)
Import of goods from UK
0
$500
Aid for developing nation
0
$100
Food aid
0
$100
net
0
$700
Capita account
Transaction index
Credit(receipts)
Debit(payment)
Purchase of foreign stock
0
$1000
Dividend on foreign stock
$100
0
Foreign investor purchase in treasury bill
$400
0
net
$500
Balance of payment
surplus
deficit
Current account
-700
700
Capital account
-500
500
net
-$1200
$1200
there is a total deficit of $1200 in balance of payment of USA
Transaction index
Credit(receipts)
Debit(payments)
Import of goods from UK
0
$500
Aid for developing nation
0
$100
Food aid
0
$100
net
0
$700
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