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International Finance Transactions

1. Indicate how each of the following international transactions is entered into the U.S. balance of payments with double-entry bookkeeping:

(a) A U.S. resident imports $500 worth of merchandise from a U.K. resident and agrees to pay in three months.
(b) After the three months, the U.S. resident pays for his imports by drawing down his bank balances in London.
(c) What is the net effect of transactions (a) and (b) on the U.S. balance of payments if they occur during the same year?

2. Indicate how each of the following international transactions is entered into the U.S. balance of payments with double-entry bookkeeping:
(a) The U.S. government gives a $100 cash balance in a U.S. bank to a developing nation as part of the U.S. foreign aid program.
(b) The developing nation uses the $100 bank balance to import $100 worth of food from the United States.
(c) What is the net effect of transactions (a) and (b) on the U.S. balance of payments if they occur during the same year?

Solution Preview

1. Indicate how each of the following international transactions is entered into the U.S. balance of payments with double-entry bookkeeping:
(a) A U.S. resident imports $500 worth of merchandise from a U.K. resident and agrees to pay in three months.

a) dr: U.S. Imports (Goods and Services) $500
cr: account payable $500

(b) After the three months, the U.S. resident pays for his imports by drawing down his bank balances in London. ...

Solution Summary

The solution indicates how international transactions are written into the balance of payments.

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