Question

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

Answer 1

Answer:

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

Debt: Current account = 120000  

Credit: Financial account = 120000

(b) Floyd Townsend, of Tampa Florida, buys 500000 dollars’ worth of British Airlines stock from Citibank New York, paying with U.S. dollars

Debt: Financial account = 500000

Credit: Financial account = 500000

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

Credit: on Current Account (+)  

Debit: on Financial Account (-)

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

Credit: on Financial Account (+)

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.

Debit: On Current Account = (2500)  

Credit: On Financial Account (2500)

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

Debit: On Capital Account (400 Million)  

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.

Debit: On Financial Account (2 Billion)

Credit: On Capital Account (2 Billion)

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

Debit: On Capital Account (500000)  

Credit: On Financial Account (500000)