Exercise 1: Show the debit and credit entries in each balance-of-payments account – goods, services, income, unilateral transfers, direct investment, portfolio investment, other capital and reserve assets – for the following transactions. Then, combine all the transactions to determine 1) the balance on merchandise trade, 2) the balance on goods, services, and income, 3) the current account balance, 4) the balance on private capital, 5) the financial account balance, and 6) BoP surplus/deficit. Interpret the results.
1. A domestic college student travels abroad for the holidays and spends $1,000 on food and lodging.
2. A domestic auto dealership imports a $20,000 automobile.
3. The home government gives a drought-stricken nation food and medicine worth $1 million as a humanitarian gesture.
4. A domestic resident receives a $100 interest payment on a foreign government bond he/she owns.
5. A foreign resident purchases a $10,000 domestic treasury bill from a domestic brokerage firm.
Exercise 2: Show the debit and credit entries in each balance-of-payments account – goods, services, income, unilateral transfers, direct investment, portfolio investment, other capital and reserve assets – for the following transactions. Then, combine all the transactions to determine 1) the balance on merchandise trade, 2) the balance on goods, services, and income, 3) the current account balance, 4) the balance on private capital, 5) the financial account balance, and 6) BoP surplus/deficit. Interpret the results.
1. The home government sells $29 million worth of wheat to a foreign country from its surplus stockpiles, being paid with $29 million in gold by the foreign government.
2. A domestic company buys $34 million in natural gas from a foreign firm and pays for the gas by writing a check on its deposits in a domestic bank.
3. Foreign soccer fans spend $6 million as tourists in the home country during a soccer tournament.
4. The home country’s Treasury pays $25 million interest on its past borrowing from foreign investors, paying with checks on a domestic bank.
5. The home government gives $8 million in foreign aid to a foreign government in the form of wheat from its own stockpiles.
6. A domestic firm signs an agreement with a foreign firm bartering its managerial services and trademarks for $10 million of the foreign firm’s merchant ships.
7. A domestic bank lends a foreign government $184 million in a new loan so that the foreign government simultaneously pays the domestic bank $184 million in interest on an old loan.
8. Domestic tourists spend $1 million in foreign countries.
9. Domestic residents own $900 million of bonds issued by foreign governments.
Exercise 3: The following information is a nation’s international transactions during a year ($ millions):
Exports of goods 490
Imports of goods 522
Exports of services 267
Imports of services 148
Income, net 5
Current transfers, net -10
Private capital outflows, net 382
Private capital inflows, net 404
1. Calculate the nation’s balances on merchandise trade, goods and services, current account, and capital and financial account.
2. What is the value of the official reserves assets (net)?