Question

The U.S. BoP statistic for the year 2008 shows unilateral transfers as a debit entry. This implies:

a. more transfers are made from the U.S. to individuals abroad.

b. more transfers are made to the U.S. from individuals abroad.

c. U.S. investors have earned a higher rate of return on foreign assets.

d. U.S. companies have invested in large number of foreign stocks.

e. the U.S. government has bought back some Treasury bonds.

Answer 1

The Balance of payment of a country is a summary statement of all economic transaction of the residents of the country with the residents of the Rest of the world usually recorded for a period of one year.

The balance of payments is maintained in a Double entry book keeping principle. A credit entry in the BOP refers to the receipts from the rest of the world. The debit entry refers to the payments to the rest of the world.

The balance of payment includes current account and capital accounts. The current account is the record of all transactions on export and import of goods and services and unilateral transfers.

The capital accounts include all transactions between the residents and foreign nationals which cause a change in the assets or liabilities of the country.

The unilateral transfers are receipts which the residents of a country or government receive for free, without making any present or future transaction in return. The unilateral payments are payments which the residents or government of the country paid for free without making any return transaction in present or future. Unilateral receipts from abroad are credited and the unilateral payments are debited.

If the BOP shows unilateral transfer as a credit balance, it means more transfers are received by the country from the rest of the world. On the other hand if it shows a debit balance, it means that more transfers are made by the country to the rest of the world than it receives.

Answer: a. more transfers are made from the U.S to individuals abroad.