Question

1.     Look at each of the cases below from the point of view of the balance of payments for the United States. Determine the subcategory of the current account or financial account that each transaction would be classified in, and state whether it would enter as a credit or debit.

a.    The U.S. government sells gold for dollars.

b.   A migrant worker in California sends $500 home to his village in Mexico.

c.    An American mutual fund manager uses the deposits of his fund investors to buy Brazilian telecommunication stocks.

d.   A Japanese firm in Tennessee buys car parts from a subsidiary in Malaysia.

e.    An American church donates five tons of rice to the Sudan to help with famine relief.

f.    An American retired couple flies from Seattle to Tokyo on Japan Airlines.

g.    The Mexican government sells pesos to the United States Treasury and buys dollars.

Answer 1

(a) The U.S government sells gold for dollars : This would be classified as credit under financial account.

(b) A migrant worker in California send $500 home to his village in Mexico : This would be classified as debit in current account.

(c) An American mutual fund manager uses the deposits of his fund investors to buy Brazilian telecommunication stocks.: This would be classified as debit under financial account.

(d) A Japanese firm in Tennessee buys car parts from a subsidiary in Malaysia: This would be classified as debit in current account.

(e) An American church donates five tons of rice to the Sudan to help with famine relief :This would be classified as debit under current account.

(f) An American retired couple flies from Seattle to Tokyo on Japan Airlines. : This would be classified as debit under current account.

(g) The Mexican government sells pesos to the United States Treasury and buys dollars.: This would be classified as debit under financial account.