Classify the following transactions and enter them into the U.S. balance of paym
ID: 1170316 • Letter: C
Question
Classify the following transactions and enter them into the U.S. balance of payments:
a. An American tourist travels to Frankfurt and spends $1,000 on hotel, bratwurst, and beer. He pays with a check drawn on a Tulsa, Oklahoma, bank.
b. Mercedes-Benz in Germany sells $400,000 of its cars to a U.S. distributor, allowing for 90-day trade credit until payment is due.
c. Herr Schmidt in Germany receives a $100 check, drawn on a U.S. bank, from his grandson in New York as a birthday gift.
d. A resident in Sun City, Arizona, receives a $2,000 dividend check from a German company. The check is from a German bank
e. The U.S. government donates $100,000 worth of wheat to Germany.
Explanation / Answer
This is a current account payment and will result in outflow of funds from the US BoP. This is an exchange transaction. This is a deferred exchange transaction and will impact BoP only upon the payment of $400,000. The transaction falls under capital account. This is a one sided transaction as there is no exchange involved. All transactions related to gifts, taxes and grants fall under this category. It falls under current account. This is a current account transaction. Donation is a one sided transaction and will fall under current account.