Choose the option from the highlighted below: According to David Waring, when me
ID: 2759958 • Letter: C
Question
Choose the option from the highlighted below:
According to David Waring, when measuring capital flows into and out of a country those capital flows include
only cross-border mergers and acquisitions.
only bond market investments.
only bond and equity market investments.
cross-border mergers and acquisitions.
only equity market investments.
1b
.If a Swedish company purchases an ink-jet fax machine from the Italian company Olivetti, paying with a 9000 kr bank transfer, then according to IMF definitions it should show up as
9000 kr credit in Sweden's current account and as a 9000 kr debit in Sweden's financial account.
a 9000 kr debit in Sweden's current account and as a 9000 kr credit in Sweden's capital account.
a 9000 kr credit in the Swedish current account and as a 9000 kr debit in Sweden's capital account.
a 9000 kr debit in Sweden's current account and as a 9000 kr credit in Sweden's financial account.
a 9000 kr debit in Sweden's current account and as a 9000 kr debit in Sweden's financial account.
Explanation / Answer
The basic formula for calculating the capital account is: Increase in Foreign Ownership of Domestic Assets (things such as real estate, cross boarder M&A, and Investments by Foreign Companies in local operations) – Increase in Domestic Ownership of Foreign Assets + Portfolio Investment (things such as stocks and bonds) + Other Investment (things such as loans and bank accounts).
Hence we shoud include stocks and bonds investments would be correct answer
Cross border M& A should be net of increase in ncrease in Foreign Ownership of Domestic Assets- Increase in Domestic Ownership of Foreign Assets , Hence not included
1B
9000 kr debit in Sweden's current account and as a 9000 kr credit in Sweden's financial account.