BOP Examples

1. Place each of the following items on the attached BOP grid. Keep in mind that each item has two entries. Afterward, sum the
2. Current Account,
3. Basic Balance, and
4. Balance of Payments.
5. Given the Balance of Payments total, will the Central Bank need to take any action? Explain.

Items:

1. Intel, a U.S. company, has just sold $1 million in semiconductor chips to Germany. To pay, the German importer drew down its NYC bank account by $1 million.

2. Vivendi, a French company, just bought a U.S. entertainment company, Universal Studios, for $5 million. To pay, Vivendi drew down its NYC bank account by $5 million.

3. Texas Instruments, a U.S. company, just earned $100,000 in profits on its plant in Japan. To pay, its Japanese subsidiary withdrew the $100,000 from its NYC bank account.

4. A U.S. investor, wary of the U.S. stock market volatility, just bought a $2 million 30-year euro bond. The european dealer deposited the $2 million in a U.S. bank account.

5. At higher prices due to the war, purchases of crude oil from Saudi Arabia totaled $6 million. The Saudi exporter took the dollar proceeds and deposited $6 million in a NYC bank account.

6. BMW, a German auto company, earned $600,000 on its plant in North Carolina. The German company deposited its $600,000 earnings check in a NYC bank account.

7. Boots & Coots International Well Control, a Texas company that can extinguish oil well fires, has been hired by the U.S. government to put out oil well fires in Iraq, for $4 million. The Texas company places its $4 million proceeds in its NYC bank account.