1. How is selling assets to foreigners different from selling goods and services

Question

1. How is selling assets to foreigners different from selling goods and services? 2. Which part of the Balance of Payments accounts increases when we record the sale of an asset to foreigners-the current account or the financial account? 3. List the variables that influence Net Capital Inflow and explain the direction of effect 4 What is the relationship between the current account balance and the financial account balance? 5. Be able to distinguish between examples of items that enter the current account (and know which sign the entries would have) and items that enter the financial account.

Explanation / Answer

First question is answered below

1.

Selling assets to foreigners is different from selling goods and services because goods and services are sold and consumed once and the transaction gets over. However selling assets to foreigners is like foreign investment since foreigners have their money invested in our home country which they can decide to keep for multiple years and then sell off.

Selling of goods and services (exports) to foreigners is recorded under current account while selling assets to foreigners is recorded under capital account in a country's BOP.

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