Quiz 19: The Balance-Of-Payments Accounts

Business

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(a) A firm in country A sells $6,000 of steel to a country B firm. Payment is made by the firm in B drawing down its checking account in a country A commercial bank. (b) Country A citizens give $1,000-worth of cash to country B relatives by writing checks on A-citizen bank accounts in country B. (c) An importer in country A buys $8,000 of apparel from a country-B supplier, paying for the goods by writing a check to be deposited into the B firm's bank account in a country A bank. (d) A citizen of country B buys a long-term bond of a company in country A. The buyer purchases the $5,000 bond by drawing down his/her checking deposit in a bank in A. (e) A firm in country A purchases $3,000 of shipping services from a country B ocean freight carrier, paying for the services by drawing down bank deposits in B owned by the A firm. (f) A's central bank buys $2,000-worth of foreign currency holdings held in a B commercial bank by an A citizen. The central bank adds the foreign currency to its own commercial bank account in country B. Next, using the debit and credit entries that you have constructed, and assuming that these six transactions were the only international transactions during the time period, construct country A's balance-of-payments summary statement for the time period. Indicate the size for country A and explain the meaning of the "balance of trade," "balance on goods and services," "current account balance," "official reserve transactions balance," and "financial account balance."

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