Consider two fictional economies, one called the domestic country and the other
ID: 1208632 • Letter: C
Question
Consider two fictional economies, one called the domestic country and the other called the foreign country. Given the transactions listed below, construct a balance of payments account for each county. Include a statistical discrepancy.
The domestic country purchased $100 in oil from the foreign country.
Foreign tourists spent $25 on domestic ski slopes
Foreign investors were paid $15 in dividends from their holdings of domestic equities.
Domestic residents gave $25 to foreign charities.
Domestic businesses borrowed $65 from foreign banks.
Foreign investors purchased $15 of domestic government bonds.
Domestic investors sold $50 of their holdings of foreign government bonds.
Explanation / Answer
Domestic BoP Accounts Foreign BoP Accounts Trade Trade Import -100 Import -25 Export 25 Export 100 Net Trade -75 Net Trade 75 Transfers Transfers Dividend Paid -15 Dividend recieved 15 Foreign Charity -25 Domestic Charity 25 Net transfer -40 Net transfer 40 Purchase of asset Purchase of asset Bank loan 65 Bank loan -65 Purchase of domestic bond 15 sale of foreign bond -15 Sale of foreign bond 50 Purchase of domestic bond -50 130 -130 BoP 15 BoP -15 Surplus 15 Deficit 15