Question

For each transaction below, enter its value and sign, and whether it belongs to the current or financial accounts. Compute the Current Account Balance, the Financial Account Balance, and indicate whether there is a Balance of Payment surplus or a Balance of Payments deficit (i.e. compute the Balance of Official Settlements).

a. A French wine consultant is hired to advise wineries in Napa on wine tasting. The Napa wineries pay the consultant $300, which the (French) consultant keeps in a bank account in Napa.

b. The United States Treasury pays interest on T-bills held by Black Rock, a British Bank, for $200. The bank holds the US dollars in a London account.

c. The European Central Bank purchases $100 from a New York bank, paying with euros that the New York bank holds in a bank in Frankfurt.

d. A Chinese holding company buys IMB, and American company, by acquiring its shares in the American stock market. The Chinese firm pays $400 to acquire IMB, and it pays with US dollars it had in its accounts.

e. The import of kimonos from Japan to the United States for $100. The American importer pays for the kimonos in Japanese yen, which the importer held in an account in Tokyo.

Answer 1

Balance of Payments (BoP) for an economy = Current A/c Balance (Trade in goods & services, etc.) + Capital A/c Balance (Flows of non-financial assets or liabilities) +Financial A/c Balance (Flows of financial assets or liabilities) + Statistical error offset A/c = 0.

Tabulated below BoP position for different countries:

Senario	Country	Current Account Balance	Financial Account Balance	Balance of Payment (BoP)
A French wine consultant is hired to advise wineries in Napa on wine tasting. The Napa wineries pay the consultant $300, which the (French) consultant keeps in a bank account in Napa.	France	+$300		Surplus
Napa	-$300		Deficit
The United States Treasury pays interest on T-bills held by Black Rock, a British Bank, for $200. The bank holds the US dollars in a London account.	USA	-$200		Deficit
UK	+$200		Surplus
The European Central Bank purchases $100 (assumed bond) from a New York bank, paying with euros that the New York bank holds in a bank in Frankfurt.	USA		+$100	Surplus
EU		-$100	Deficit
A Chinese holding company buys IMB, and American company, by acquiring its shares in the American stock market. The Chinese firm pays $400 to acquire IMB, and it pays with US dollars it had in its accounts.	China		-$400	Deficit
USA		+$400	Surplus
The import of kimonos (Japanese dress) from Japan to the United States for $100. The American importer pays for the kimonos in Japanese yen, which the importer held in an account in Tokyo.	Japan	+$100		Surplus
USA	-$100		Deficit