Question

International economics                                             Name:____________________

Balance of Payments

1.         Use the table below to answer the following questions.

a.         Classify the transactions below by putting a dollar value in the appropriate column.  Total the columns at the bottom.  The first is done as an example.

	Transaction	Current Account: Inflow of Dollars	Current Account: Outflow of Dollars	Financial Account: Inflow of Dollars	Financial Account: Outflow of Dollars
A	A U.S. business sells $400 of soybeans to China	$400
B	A Chinese financial firm buys $800 15% stake in U.S. based firm
C	U.S. workers in Ireland receive $350 in payments
D	A Chinese firm sells $1100 of machinery to the U.S.
E	A Chinese airline provides $200 of flights to U.S. residents
F	A U.S. firm buys 20% ownership in a German business for $1000
G	A U.S. financial firm buys $700 of Japanese bonds
H	A U.K. financial firm buys $1050 of U.S. stocks, none totaling over 10% of outstanding shares
I	Armenians in U.S. send $100 home to relatives
J	Chinese financial firm earns $100 in interest from U.S. treasuries held
L	U.S. provides advertising for Japanese automakers for $600
	Column Totals

b.         Does the U.S. have a current account surplus (inflow of dollars) or deficit (outflow of dollars)?  How much?

c.         Does the U.S. financial account have a net inflow of dollars or a net outflow of dollars?  How much?

            Use the letters in the first column to answer the following questions.

d.         Which transaction(s) represent a remittance?  ________

e.         Which transaction(s) represent a direct investment?  ________

f.          Which transaction(s) represent a U.S. export of goods?  ________

g.         Which transaction(s) represent a U.S. service export?  ________

h.         Which transaction(s) represent a portfolio investment?  ________

i.          What is the total amount of dollar inflows?  __________

j.          What is the total amount of dollar outflows?  __________

Answer 1

	Current Account:Inflow of Dollars	Current Account:Outflow of Dollars	FinancialAccount:Inflow of Dollars	FinancialAccount:Outflow of Dollars
A) A U.S. business sells $400 of soybeans to China	$400
B) A Chinese financial firm buys $800 15% stake in U.S. based firm			$800
C) U.S. workers in Ireland receive $350 in payments	$350
D) A Chinese firm sells $1100 of machinery to the U.S.				$1100
E) A Chinese airline provides $200 of flights to U.S. residents		$200
F)A U.S. firm buys 20% ownership in a German business for $1000				$1000
G) A U.S. financial firm buys $700 of Japanese bonds				$700
H)A U.K. financial firm buys $1050 of U.S. stocks, none totaling over 10% of outstanding shares			$1050
I)Armenians in U.S. send $100 home to relatives		$100
J)Chinese financial firm earns $100 in interest from U.S. treasuries held		$100
L)U.S. provides advertising for Japanese automakers for $600	$600
Total	$1350	$400	$1850	$2800

b)

Current account balance =Current Account Inflow - Current account outflow = 1350 - 400 = $950

There is Current account surplus of $950

c)

Financial account balance =Financial Account Inflow - Financial account outflow = 1850 - 2800 = -$950

There is Financial Account Deficit of $950

d.         Which transaction(s) represent a remittance? I) Armenians send home dollars

This is remittance transactions becasue this only flows one way without any economic transaction taking place.

e.         Which transaction(s) represent a direct investment? B

This is a direct investment because this is done as a long term perespective as a huge stake is being purchased

f.          Which transaction(s) represent a U.S. export of goods? A)

Selling soyabeans which is a good , to China is seen as an export of good

g.         Which transaction(s) represent a U.S. service export? L)

Export os ervice of advertising to a Chinese firm

h.         Which transaction(s) represent a portfolio investment? H)
This is aportfoli investment as it is not made keeping in long term , it is a short term purchase of stake which is not a high percentage .

i) Total amount of dollar inflows = Current account inflow + financial account inflow = 1350 + 1850 = $3200

j) Total amount of dollar outflows = Current account outflow + financial account outflow = 400 + 2800 = $3200