Question

What is a nation’s cash inflow (outflow) on its current account and its capital account given the following information? Was there a net currency inflow or outflow?

a.  Bahari sells 50,000 printed t-shirts to Old Navy for $300

b.  Pete sends $50 to her cousin in Chicago via Western Union

c.  Julian Believe purchased stock in Hennessey Co. for $220

d.  Patrick is paid $60 for his business consult with Delta Airlines

e.  Instagram sends Shenique $40 in dividends to her BOB account

f. Kodak Programming sells software design to Mr. Photo for $20

g.  Panther transferred Cable Beach Golf course for $180 to the PGA Tour Co.

h. General Motors off boards 5 assembly line robots to BPL for $500

Answer 1

A. Bahari sells 50,000 printed t-shirts to Old Navy for $300 - this will be recorded in current account of BOP. It will result in inflow of foreign exchange.

B. Pete sends $50 to her cousin in Chicago via Western Union - this will also be recorded in current account of balance of payment. This results in outflow of foreign exchange.

C. Julian Believe purchased stock in Hennessey Co. for $220- this will be recorded in capital account of balance of payment. It will result in outflow of foreign exchange.

D. Patrick is paid $60 for his business consult with Delta Airlines - this will be recorded in current account balance of payment and it will result in inflow of foreign exchange.

E. Instagram sends Shenique $40 in dividends to her BOB account- this will be recorded in current account of BOP and it will result in inflow of foreign exchange.

F. Kodak Programming sells software design to Mr. Photo for $20 - this is considered as an import of service. it will be recorded in current account of balance of payment and will result in outflow of foreign exchange. Purchase of software from kodak will result in outflows.

G. Panther transferred Cable Beach Golf course for $180 to the PGA Tour co.- it will be recorded in capital account of BOP. This will result in inflow of foreign exchange. Here golf course has been sold to pga tour for $180.

h. General Motors off boards 5 assembly line robots to BPL for $500 - it is an item of CAPITAL ACCOUNT. it will result in outflow of foreign exchange robots are purchased by bpl from general motors.

Current account balance = 300+60+40-50-20 = 330 ( surplus)

Capital account balance = 180-220-500= -540 ( deficit)

Balance of payment = Current account balance + capital account balance = 330+(-540) = -210 net outflows