Question #1: Explain how each of the following transactions would enter the U.S.
ID: 1124768 • Letter: Q
Question
Question #1: Explain how each of the following transactions would enter the U.S. balance of payments accounts. Focus on only the transactions described. Do not be concerned with possible offsetting transactions. Indicate whether it is recorded in the current accounts or financial accounts and whether it is a credit or debit. government sells F-16 fighter planes to a foreign government b. A U.S. investor purchases U.K. government bonds in London. c. A New York bank receives the interest on its loan to Brazil.Explanation / Answer
Current account shows the exports and imports of goods and services, transfer payment in the BOP. In case of exports money is received and current account is credited whereas when they are imported the current account is debited. Whereas capital account records the sale purchase of financial instruments, investments etc between of an economy. Financial asstes on the other hand measures the increase or decrease of financial asstes in other couteries.
A. credited to current account.
By selling fighter jets US will earn money, so it will be credited in the current account of BOP.
B. debited to financial account.
when bonds are purchased in UK, money will be paid thus it is a payment and will be debited.
C. credited to financial account.
Interest income will be credited as it is inflow of dollars in the economy.