Question

Determine where the following situations would enter into a capital or current account , and whether as a debit(-) or credit(+) on the balance of payments in Jamaica.

(a) purchases of cars and computers from Germany

(b) A Jamaican who is working in Jamaica and living in Jamaica has opened a bank account in Miami transferring US 8,000 into it

(c) A grant given to the Venezuela by the Government of Jamaica

(d) A money gift sent by a Jamaican working in Canada to his brother in Jamaica

2. Comments of Balance of Payment deficit .

(2)

Answer 1

Solution:

a) Purchase of cars and computers from Germany: This is an import of foreign (Germany) goods, and thus will come under balance of trade in current account. Moreover, for such imports money is paid to Germany producers, indicating a movement of money from home country to foreign country. Such outflow of money will be recorded as debit on BOP in Jamaica.

b) When a Jamaican living and working in Jamaica opens bank account in Miami, he/she is engaging in banking of foreign country. Thus, this is recorded in capital account of balance of payment. Since, there is outflow of Jamaican currency to foreign nation, this will be recorded as a debit in BOP.

c) A grant paid by government of a country to foreign nation comes under the (official) transfer payment of current account in BOP. Again, being an outflow of currency in foreign nation from home country, this will also be recorded on the debit side.

d) Finally, money gift to/from relatives is like a private transfer only, and thus, comes under transfer payments of current account of BOP. For someone working in foreign nation, they earn a foreign currency. When this currency is received by some domestic resident, it is like an inflow of currency, recording such an entry on the credit side of BOP.