Question

Use the following information to answer the next three questions.

Transactions between New Zealand and the rest of the world in 2018 are shown below.

1. New Zealand companies bought NZ$40 million worth of steel from US companies.
2. New Zealand's central bank sold NZ$25 million of treasury bonds to foreign investors.
3. New Zealand investors received NZ$2 million in interest payments from foreign investments.
4. New Zealand citizens purchased NZ$11 million worth of computers produced in Japan.
5. Americans spent NZ$20 million touring New Zealand.
6. JKL (New Zealand firm) purchased NZ$4 million in stock issued by a Brazilian firm.
7. The New Zealand central bank sold NZ$8 million worth of US dollars.

Find the capital account balance in terms of millions of New Zealand dollars.

Find the balance of trade in terms of millions of New Zealand dollars. Do not use currency symbols or words when entering your response.

Find the current account balance in terms of millions of New Zealand dollars.

Answer 1

Ans- (a) Capital account is a type of account which records all the transactions which affect the assets and liabilities in a particular period of the country. So as per the question the capital account balance in terms of New Zealand dollars will be

(i) New Zealand's central banks sold $25 million of treasury bonds to the foreign investor.

(ii) JKL( New Zeland Firm) Purchased NZ$4 million in stocks issued by a Brazilian firm.

Here (i) represents inflow of money and (ii) represents an outflow of money.

Therefore Net Capital account will be 25-4 = $21 million.

Ans-(b) Balance of trade - Balance of payment includes all the economic transaction i.e import and export of goods and services occurred during a particular period in a country.

(i) New Zealand companies bought NZ$40 million worth of steel from US companies.

(ii) New Zealand citizens purchased NZ$11 million worth of computers produced in Japan.

Both these transactions represent the outflow of money from NewZeland happened in 2018.

Therefore the Net Balance of payment in 2018 will be -40-11 i.e -$51 million.

Ans (c) Current account represents the country total income over a period of time in a particular country. In other words, it represents all that transaction which are not the capital account.

(i) New Zealand companies bought NZ$40 million worth of steel from US companies.

(ii)New Zealand investors received NZ$2 million in interest payments from foreign investments

(iii)New Zealand citizens purchased NZ$11 million worth of computers produced in Japan.

(iv)Americans spent NZ$20 million touring New Zealand.

(v)The New Zealand central bank sold NZ$8 million worth of US dollars.

Here (ii), (iv) and (v) represents the inflow of money and (i) and (iii) represents the outflow of money.

Therefore the Net Income or Current account of NewZeland in 2018 will be (2+20+8)-(40-11) = -$21 million.