Balance of Payments Accounting Describe how each of the foll

Balance of Payments Accounting: Describe how each of the following transactions affects the U.S. Balance of Payments. (Recall that each transaction gives rise to two entries in the Balance-of-Payments Accounts.)

(a) An American university buys several park benches from Spain and pays with a $120,000 check.

(b) Floyd Townsend, of Tampa Florida, buys 5,000.00 dollars worth of British Airlines stock from Citibank New York, paying with U.S. dollars.

(c) A French consumer imports American blue jeans and pays with a check drawn on a U.S. bank in New York.

(d) An American company sells a subsidiary in the United States and with the proceeds buys a French company.

(e) A group of American friends travels to Costa Rica and rents a vacation home for $2,500. They pay with a U.S. credit card.

(f) The United States sends medicine, blankets, tents, and nonperishable food worth 400 million dollars to victims of an earthquake in a foreign country.

(g) A billionaire from Russia enters the United States on an immigrant visa (that is, upon entering the United States she becomes a permanent resident of the United States.) Her wealth in Russia is estimated to be about 2 billion U.S. dollars.

(h) The United States forgives debt of $500,000 to Nicaragua

Solution

(a) An American university buys several park benches from Spain and pays with a $120,000 check.

    Entries: current account- 120 , 000 and financial account +120 , 000

(b) Floyd Townsend, of Tampa Florida, buys 5,000.00 dollars worth of British Airlines stock from Citibank New York, paying with U.S. dollars.

     Entries: financial account- 5 , 000 . 00 and financial account +5 , 000 . 00

(c) A French consumer imports American blue jeans and pays with a check drawn on a U.S. bank in New York.

    Entries: credit on current account (+) and debit on financial account (- )

(d) An American company sells a subsidiary in the United States and with the proceeds buys a French company.

      Entries: credit on financial account (+) and debit on financial account (- )

(e) A group of American friends travels to Costa Rica and rents a vacation home for $2,500. They pay with a U.S. credit card.

      Entries: debit on current account (- 2 , 500) and credit on financial account (+2 , 500)

(f) The United States sends medicine, blankets, tents, and nonperishable food worth 400 million dollars to victims of an earthquake in a foreign country.

     Entries: Debit on capital account (- 400 million ) and credit on financial account (+400 million )

(g) A billionaire from Russia enters the United States on an immigrant visa (that is, upon entering the United States she becomes a permanent resident of the United States.) Her wealth in Russia is estimated to be about 2 billion U.S. dollars.

     Entries: Debit on financial account (- 2 billion ) and credit on capital account (+2 billion )

(h) The United States forgives debt of $500,000 to Nicaragua

      Entries: debit on capital account (- 500 , 000) , credit on financial account (+500 , 000)