Question

All of the transactions below come from The Lord of the Rings.  Show how each is recorded in the balance of payments for the specified location.  Remember, all transactions produce two entries:  a credit (+) and a debit (–).  If a part of the transaction involves the current account, you must specify which portion of the current account is involved (i.e., the trade balance, net factor income from abroad, or net unilateral transfers).

1.  Shortly after Aragorn, son of Arathorn, became king of the reunited Kingdom of Gondor and Arnor (KGA), he paid the riders of Rohan 10,000 castar (₡) for their mercenary service (which is a factor rental) rendered in the siege of Minas Tirith.  Please write the entries for this transaction for the balance of payments accounts of the KGA.

Answer 1

King of KGA paid 10,000 castars as factor payments . It is a debit in current account because service is imported here . Goods and services transactions are enlisted in current account of KGA . It is a payment given for services received from riders of Rohan . It is a payment done for factors of production or input used for services . So it is part of net factor income from abroad . 10,000 castars is debited from current account . But it is surplus for financial / capital account because a country will have less foreign money to invest in foreign assets .