Balance of Payments
Explain how each of the following transactions generates two entries--a credit and a debit--in the American balance of payments accounts, and describe how each entry would be classified:
a. An American buys a share of German stock, paid for by writing a check on an account with a Swiss bank.
b. An American buys a share of German stock, paying the seller with a check on an American bank.
c. The French government carries out an official foreign exchange intervention in which it uses dollars held in an American bank to buy French currency from its citizens.
d. A tourist from Detroit buys a meal at an expensive restaurant in Lyons, France, paying with a traveler's check.
e. A California winegrower contributes a case of cabernet sauvignon for a London wine tasting.
f. A U.S. owned factory in Britain uses local earnings to buy additional machinery.
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Solution Preview
a) Zero balance involved in this transaction, because no money flows in or out of the US. (Capital account - private)
b) Buying foreign stock ...
Solution Summary
The solution provides a one line response to the question being asked. It tells you the impact of the transaction on the balance of payments. An excellent solution for students looking for brief and concise answer. However, if you want detailed explanation of why that account was impacted, then this might not be the best solution to download. The response does provide some explanation of why the transaction is impacting a particular account (and the direction of the impact). However, some students may find that they need more information to understand the solution better.