Question

1. How would each of the following transactions show up on the U.S. balance-of-payments accounts?

a. Payment of $50 million in Social Security to U.S. citizens living in Costa Rica.

b. Sale overseas of 125,000 Elvis Presley CDs.

c. Tuition receipts of $3 billion received by American universities from foreign students

d. Payment of $1 million to U.S. consultants A.D. Little by a Mexican company

e. Sale of a $100 million Eurobond issue in London by IBM

f. Investment of $25 million by Ford to build a parts plant in Argentina

g. Payment of $45 million in dividends to U.S. citizens from foreign companies

2. Set up the double-entry accounts showing the appropriate debits and credits associated with the following transactions:

a. ConAgra, a U.S. agribusiness, exports $80 million of soybeans to China and receives payment in the form of a check drawn on a U.S. bank.

b. The U.S. government provides refugee assistance to Somalia in the form of corn valued at $1 million.

c. Dow Chemical invests $500 million in a chemical plant in Germany financed by issuing bonds in London.

d. General Motors pays $5 million in dividends to foreign residents, who choose to hold the dividends in the form of bank deposits in New York.

e. The Bank of Japan buys up $1 billion in the foreign exchange market to hold down the value of the yen and uses these dollars to buy U.S. Treasury bonds.

f. Cemex, a Mexican company, sells $2 million worth of cement to a Texas company and deposits the check in a bank in Dallas.

g. Colombian drug dealers receive $10 million in cash for the cocaine they ship to the U.S. market. The money is smuggled out of the United States and then invested in U.S. corporate bonds on behalf of a Cayman Islands bank.

3. The following transactions (expressed in US$ billions) take place during a year. Calculate the U.S. merchandise-trade, current-account, financial-account, and official reserves balances.

a. The United States exports $300 of goods and receives payment in the form of foreign demand deposits abroad.

b. The United States imports $225 of goods and pays for them by drawing down its foreign demand deposits.

c. The United States pays $15 to foreigners in dividends drawn on U.S. demand deposits here.

d. American tourists spend $30 overseas using traveler’s checks drawn on U.S. banks here.

e. Americans buy foreign stocks with $60, using foreign demand deposits held abroad.

f. The U.S. government sells $45 in gold for foreign demand deposits abroad.

g. In a currency support operation, the U.S. government uses its foreign demand deposits to purchase $8 from private foreigners in the United States.

Answer 1

(1)

1. Net Unilateral transfer for services, deficit on service account.
2. .b. It is export of goods will be recorded on credit side of BOP.
3. It is export of services will be recorded on credit side of BOP.
4. . It is export of services will be recorded on credit side of BOP.
5. it is import of capital from London by IBM recorded in capital account in credit side.
6. it is considered as export of capital.
7. . it is services rendered by U.S. citizen to foreign companies. and will be recorded as export of services on credit side of current account. In BOP.

NOTE: 1 question is solved completely.