Questions on material in Chapter 5 IL. (34 points). For each of the following tr
ID: 2550174 • Letter: Q
Question
Questions on material in Chapter 5 IL. (34 points). For each of the following transaction indicate whether it, and the offsetting transaction, should be classified as: (1) a debit or credit and (2) in the current account or financial account of the United States. Under debit or credit enter the actual amount. An Italian corporation pays $Smillion in dividends to a US pension fund that owns part of its stock, paying them by checks drawn on a demand deposit the Italian firm owns in a New York bank (NOTE: a dividend is a way of paying profits as income to shareholders.) Debit Credit CA or FA? Dividend (amount) Demand deposit (amount) 2. Vail ski resorts in Colorado hires 200 ski instructors from Australia and pays them each $5,000 to work for the winter season, a total of $1 million in wages. Payments are made in checks drawn on an American banl Debit Credit CA or FA? Wages (amount) Demand deposit (amount) In which component of the CA (TB, NFIA, or NUT) do these wages enter?Explanation / Answer
INCOME BALANCE:
NET INVESTMENT INCOME
INCOME BALANCE; (NFIA)
NET INTERNATIONAL COMPENSATION TO EMPLOYEES
TRADE BALANCE:IMPORT GOODS/SERVICES
MECHANDISE( EXPORT LESS IMPORT)
DOMESTIC ASSETS OWNERSHIP WITH FOREIGN (SALE OF ASSETS)
NET UNILATERAL TRANSFERS;
PRIVATE REMITTANCES & OTHER TRANSFERS
CURRENT ACCOUNT BALANCE
FINANCIAL
THUS THE CA+FA = (-9)+9 =0
BECAUSE CURRENT ACCOUNT BALANCE INDICATES NET INFLOW/OUTFLOW FROM ABROAD AND IF U.S. HAS OUTFLOW (I.E. WANT TO IMPORT) IT WILL REQUIRE SOURCE OF THAT CURRENCY WHICH WILL BE RECIEVE FROM FINANCIAL ACCOUNT BALANCE AND VICE-VERSA.
AMOUNT IN $ MILLION Serial no. and title Debit Credit CA OR FA Component 1.DIVIDENDS 5 CAINCOME BALANCE:
NET INVESTMENT INCOME
DEMAND DEPOSIT 5 2.WAGES 1 CAINCOME BALANCE; (NFIA)
NET INTERNATIONAL COMPENSATION TO EMPLOYEES
DEMAND DEPOSIT 1 3. PARTS(IMPORT) 7 CATRADE BALANCE:IMPORT GOODS/SERVICES
MECHANDISE( EXPORT LESS IMPORT)
BONDS 7 4.FACTORY 15 FADOMESTIC ASSETS OWNERSHIP WITH FOREIGN (SALE OF ASSETS)
CHECKS 15 JAPANEES LOAN IS BOP(BALANCE OF PAYMENT) CREDIT FOR U.S. 5.REMITTANCE 6 CANET UNILATERAL TRANSFERS;
PRIVATE REMITTANCES & OTHER TRANSFERS
MONEY ORDERS 6 6 GERMAN BONDS 4 FA US GOVT. ASSETS ABROAD: DIRECT INVESTMENT PAYMENTS 4Related Questions
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