1. Look at each of the following cases from the point of view of the balance of
ID: 1203359 • Letter: 1
Question
1. Look at each of the following cases from the point of view of the balance of payments for the United States. Determine the "subcategory" of the current account or financial account that each transaction would be classified in, and state whether it would enter as a credit or debit.
(a) The U.S. government sells gold for dollars.
(b) A migrant worker in California sends $500 home to his village in Mexico.
(c) An American mutual fund manager uses the deposits of his fund investors to buy Indian telecommunication stocks.
(d) A firm in Nebraska buys car parts from a subsidiary in Canada.
(e) An American church donates five tons of rice to Nepal to help with earthquake relief.
(f) An American retired couple flies from Phoenix to Tokyo on Japan Airlines.
(g) The Swiss government sells Swiss franc to the United States Treasury and buys dollars
Explanation / Answer
selling-debit
buying dollars-credit
(a) The U.S. government sells gold for dollars capital account,US official reserve asset credit b) A migrant worker in California sends $500 home to his village in Mexico current account,remittances debit (c) An American mutual fund manager uses the deposits of his fund investors to buy Indian telecommunication stocks capital account,portfolio investment debit (d) A firm in Nebraska buys car parts from a subsidiary in Canada. current account,import of goods merchandise debit (e) An American church donates five tons of rice to Nepal to help with earthquake relief. current account,unilateral transfers debit (f) An American retired couple flies from Phoenix to Tokyo on Japan Airlines. current account, import of services debit (g) The Swiss government sells Swiss franc to the United States Treasury and buys dollars capital account,assets abroadselling-debit
buying dollars-credit
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