(International Finance)

Problem 2:

The following transactions (expressed in U.S. $ billions) take place during a year. Assuming Capital account is zero.

Based on it, Allocate each transaction to its account and Calculate the U.S. current-account, financial-account and the balance of payment.

a. The United States exports $300 of goods and receives payment in the form of foreign demand deposits abroad.

b. The United States imports $225 of goods and pays for them by drawing down its foreign demand deposits.

c. The United States pays $15 to foreigners in dividends drawn on U.S. demand deposits here.

d. American tourists spend $30 overseas using traveler's checks drawn on U.S. banks here.

e. Americans buy foreign stocks with $60, using foreign demand deposits held abroad.

f. The U.S. government sells $45 in gold for foreign demand deposits abroad.

g. In a currency support operation, the U.S. government uses its foreign demand deposits to purchase $8 from private foreigners in the United States.

U.S. balance of payments accounts:

Exports		Imports
Balance on current account: Capital Outflows		Capital Inflows
Balance on financial account:

There are no capital-account transactions.