Answer to Question #258389 in Macroeconomics for shon

Question

Explain how each of the following transactions would enter the U.S. balance of payments accounts. Discuss only the transactions described. Do not be concerned with possible offsetting transactions.

a. The U.S. government sells F–16 fighter planes to a foreign government.

b. A London bank sells yen to, and buys dollars from, a Swiss bank.

c. The Federal Reserve sells yen to, and buys dollars from, a Swiss bank.

d. A New York bank receives the interest on its loans to Brazil.

e. A U.S. collector buys some ancient artifacts from a collection in Egypt.

f. A U.S. oil company buys insurance from a Canadian insurance company to insure its oil rigs in the Gulf of Mexico.

g. A U.S. company borrows from a British bank

Answer 1

Solution:

a.). This is the export of goods which are recorded in the current account and added to the U.S. balance of payments accounts.

 

b.). This is a net direct investment that goes to the financial account and is added to the balance of payments accounts.

 

c.). This is a net portfolio investment that goes to the financial account and is deducted from the balance of payments accounts.

 

d.). This is a net portfolio investment that goes to the financial account and is deducted from the balance of payments accounts.

 

e.). This import of goods which are recorded in the current account and deducted from the U.S. balance of payments accounts.

 

f.). This is the import of services that are recorded in the current account and deducted from the balance of payments accounts.