Show the following transactions that should be recorded in U.S. BoP using double-entry accounting system: A.)...

Show the following transactions that should be recorded in U.S. BoP using double-entry accounting system:

A.) Newmont Mining—a U.S. mining concern—exports $400 million worth of copper to China and is paid in the form of a payment drawn on a U.S. bank

B.) Dupont expands its plastics manufacturing capacity in its Polish plant by investing $250 million financed by a dollar bond issue in London (United Kingdom

C.) The U.S. government provides food assistance to Sudanese refugees in the amount of $25 million worth of flour.

D.) Cathay Pacific, the Hong Kong–based airline, purchases five Boeing Dreamliners in 2013 for $750 million. The U.S. Export-Import Bank provides a seven-year loan for the full amount of the purchase with no interest or principal payments due in 2013. Explain how the transaction would be recorded by the U.S. balance of payments.

E.) Assume that France decides to write off €10 billion of debt to Morocco. What would be the impact of debt forgiveness on 1. France’s balance of payments and 2. Morocco’s balance of payments?

Solutions

Expert Solution

Newmont Mining—a U.S. mining concern—exports $400 million worth of copper to China and is paid in the form of a payment drawn on a U.S. bank

It is part of export, and US company earns dollar by exporting to china. It shall included in BOP. BOP shall be credited.

Dupont expands its plastics manufacturing capacity in its Polish plant by investing $250 million financed by a dollar bond issue in London (United Kingdom

It is not part of BOP. Since firm is making investment overseas and fund is also being raised overseas.

The U.S. government provides food assistance to Sudanese refugees in the amount of $25 million worth of flour.

It shall be recorded in BOP as unilateral payments.

Cathay Pacific, the Hong Kong–based airline, purchases five Boeing Dreamliners in 2013 for $750 million. The U.S. Export-Import Bank provides a seven-year loan for the full amount of the purchase with no interest or principal payments due in 2013. Explain how the transaction would be recorded by the U.S. balance of payments.

It will affect current account and capital accounts simultaneously. Current account is credited and while capital is debited.

E.) Assume that France decides to write off €10 billion of debt to Morocco. What would be the impact of debt forgiveness on 1. France’s balance of payments and 2. Morocco’s balance of payments?

France BOP shall be debited while BOP of Morocco shall be credited.

Rahul Sunny answered 1 year ago

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