Explain the effect on the balance of payments for the US, with an American university buying several park benches from Spain and pays with a $120,000 check.
import so CA falls by 120,000, Financial account +120,000 as you are exporting dollars
Explain the effect on the balance of payments, with Floyd Townsend of Tampa Florida buying $5000 worth of British Airline stocks from Citi Bank New York and paying with U.S dollars
- Paying with US dollars, means you are exporting dollars therefore a positive entry on the financial account
- Buying a foreign share means a negative contribution to the Financial account.
Explain the effect on the balance of payments: A French consumer imports Jeans from America and pays with a check drawn from a US bank
- Export so CA increases by X ammount for the US
- Because its paid with in $ you are importing more US dollars into the economy therefore is a negative entry on the financial account by X amount
Explain the effect on the Balance of Payments: An American company sells a subsidiary in the US, and with the proceeds buys a French company;
- +ve entry as they are exporting dollars which they use to pay for the French company.
- -ve entry as they buy a foreign company
Explain the effect on the Balance of Payments: A group of American friends travel to Costa Rica and rents a vacation home for $2500. They pay with a US credit card.
- Exporting $ leads to a positive contribution on the financial account
- You are paying with $ for Costa Rica services, therefore this counts as an import.
Explain the effect on the Balance of Payments: The US sends medicines, blankets, tents, and nonperishable food worth $400 million dollars to victims of an earthquake in a foreign country.
- Negative entry in Net unilateral transfers in the form of aid as you as giving $400mil away
- Positive entry of $400 mil on the financial account even though you are not exporting the money.
What Is the current account equal to?
Current Account = Trade Balance + Income Balance + Net unilateral transfers
What is the NIIP at the end of 2015 equal to?
NIIP (end 2015) = NIIP (start of 2015) + CA
How are net investment income and the NIIP related?
NII = rNIIP, Net investment income is the return gained from your NIIP