PLEASE NOTE: if you\'re writing on paper please write clearly and do not write i

Question

PLEASE NOTE: if you're writing on paper please write clearly and do not write in script. Please don't answer the question unless you can write clearly. Thank you I appreciate it :)

Question #1: Explain how each of the following transactions would enter the U.S. balance of payments accounts. Focus on only the transactions described. Do not be concerned with possible offsetting transactions. Indicate whether it is recorded in the current accounts or financial accounts and whether it is a credit or debit. a. The U.S. government sells F-16 fighter planes to a foreign government. b. A U.S. investor purchases U.K. government bonds in London. C. A New York bank receives the interest on its loan to Brazil.

Explanation / Answer

Before answering the question, it is advisable to have an insight into the basic understanding of how various transactions impact the balance of payments.

Where any item is exported, a credit entry is recorded for the value. When an item is imported, a debit entry is recorded for the value.

In case the item involved in the transaction is a good or service, it is recorded on the current account and if the item is an asset, it is recorded on the financial account of the balance of payments.

a. Sale of fighter planes to the foreign government is recorded as a credit entry on the current account of the balance of payments.

b. Purhcae of U.K government bonds is recorded as a debit entry on the financial account of the balance of payments.

c. Interest received by the New york bank on its loan to Brazil is recorded as a credit entry on the financial account of the balance of payments.

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