Explain how each of the following transactions generates a credit and a debit in the American...

Explain how each of the following transactions generates a credit and a debit in the American balance of payments accounts and described (BRIEFLY) how each entry would be classified:
1. An American buys a share of German stock, paying by writing a check on an account with a Swiss bank.
2. The Korean government carries out an official foreign exchange intervention in which it uses dollars held in an American bank to buy Korean currency from its citizens
3. A tourist from Detroit buys a meal at a restaurant in Lyons, France, paying with a traveler’s check
4. A California winemaker contributes a case of cabernet sauvignon for a London based win tasting.
5. A US owned factory in Britain uses local earnings to buy additional machinery

Expert Solution

A) Debit in BOP account.

This is because when money goes out of the country whether by check or any other means. It is debited. Debit means goes out credit means comes in.

Credit is in the form of shares. Shares are coming in the country which is a part of current account.

B) debit in the form of Korean currency.

Credit in the form of Dollars.

C) Debit.

This is because person from detroit that is in US pays in france. This means money is going out of the country. So there will be a debit entry.

Credit is in the form of meal which shows credit in current account meaning goods are credited.

D) Debit.

This is because contribution is done in which money is going out of the country.

Credit is the wine testing which is a part of current account.

E) Debit

This is because money is going out to buy machinery.

Credit is in current account as machinery is being purchased which will further lead to earn more money.

Rahul Sunny answered 1 year ago

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Explain how each of the following transactions generates a credit and a debit in the American...

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