solution
1. 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 (Current,
Financial or Capital account):
entries—a credit and a debit-in the American balance of payments
accounts, and describe how each entry would be classified (Current,
Financial or Capital account):
a. An American buys a share of German
stock, paying by writing a check on an account with a Swiss bank.
stock, paying by writing a check on an account with a Swiss bank.
b. 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.
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.
c. A tourist from Detroit buys a meal at an
expensive restaurant in Lyons, France, paying with a traveler’s check.
expensive restaurant in Lyons, France, paying with a traveler’s check.
d. A U.S.-owned factory in Britain uses local earnings to buy additional
machinery.
machinery.
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