What are the current account and the capital account in the balance of payments?
ID: 1193460 • Letter: W
Question
What are the current account and the capital account in the balance of payments? For each of the international transactions below, determine whether it is a credit or a debit in the US balance of payments, whether it is a current account or capital account transaction, and whether it increases or decreases the size of the US balance of payments deficit.
Japan buys rice from the United States.
Ford Motor Company builds an automobile plant in Russia.
A German insurance company buys US government bonds.
US residents vacation in Asia.
Explanation / Answer
Answer:
Current Account:
Inflows and outflow of goods and services into a country are included in current account. Earning from investment, receipts from income generating assets such as stock are also included in current account.
Capital Account:
In this, all international capital transfers are recorded. This includes buying of fixed assets, bonds, debentures etc by any foreigner in home country or local citizen buys these assets outside the home country.
Description Debit/Credit on US balance of payment Current/Capital account Increase/Decrease payment deficit Japan buys rice from the United States Credit Current Decrease Ford Motor Company builds an automobile plant in Russia Debit Capital Increase A German insurance company buys US government bonds Credit Capital Decrease US residents vacation in Asia Debit Current IncreaseRelated Questions
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