TABLE 1 _______________________________________ The U.S. Balance of Payments, 19
ID: 1222576 • Letter: T
Question
TABLE 1
_______________________________________
The U.S. Balance of Payments, 1991
(billion dollars;
+ is surplus of receipts, - is deficit)
________________________________________
Merchandise trade -73.4
Services +45.3
Investment income +16.4
Balance on goods, services and income-11.7
Unilateral transfers +8.0
Balance on current account -3.7
Nonofficial capital* -20.5
Official reserve assets +24.2
Balance on capital account+3.7
Total balance0
* Includes statistical discrepancy.
SOURCE: U.S. Department of Commerce, Survey of Current Business.
International Business Questions
1) Looking at Table 1, what is a balance of payment account trying to uncover?
2) What sort of items does the US examine as to its International transactions?
3) In discussing how Government Balances its Treasury and Government expenditure budget, how important is it that the United States examines its foreign Balance of Payments account quarterly or yearly?
4) Currencies used to be fixed but why have we moved towards flexible currencies that rise and fall over time?
5) Can an increase or decrease in the US dollar change which parts of Table 1 in the US account Balance of Payment account?
6) According to economists what do they suggest should happen to exchange rates, should exchange rates be fixed (with other countries rates), flexible (adjust daily with changes in other currencies) or should they have a semi fixed- flexible nature or (having a bit of both fixed and flexible status)?
Explanation / Answer
1) Looking at Table 1, what is a balance of payment account trying to uncover?
Balance of payment is trying to state the economic trasactions and their volume that took place between the people of US and rest of the world. It shows various heads, showing whether US was on surplus or deficit related to particular heads, e.g. whether we exported to the rest of the world or imported from them, if we talk about goods and services.
2) What sort of items does the US examine as to its International transactions?
Items which US examine as to its international transactions are export and import of goods and services, Income Investments made by US and made in US by foreigners, one sided transfers by US to any of the country in the rest of the world.
3) In discussing how Government Balances its Treasury and Government expenditure budget, how important is it that the United States examines its foreign Balance of Payments account quarterly or yearly?
It is better to examine the foreign Balance of Payments account quarterly than annully, for US to have more control over its Treasury and Government expenditure budget. Reviewing international flow of funds, in short span can help the government make quick policy decisions to maintain Treasury and generate more incomes for the government.
4) Currencies used to be fixed but why have we moved towards flexible currencies that rise and fall over time?
Currecies used to be fixed, but since countries are trading with each other internationally, it is more justified that the value of a currency must be based on its demand and supply in the market. Suppose US trade with China, now In China it might be the scene that US goods are in high demand, thus the demand for USD is more in China, thus the value of USD in comparison to currency of China must be higher. However, the fixed currecy system do not takes into account any such effects.
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