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Chapter 33: Q3 - Problems (page 753)

Over the course of a year, a nation tracked its foreign transactions and arrived at the following amounts

What are this nation's balance of trade, current account balance, financial account balance?

Short Answer

Expert verified

Balance of Trade Balance = -100(Deficit) ; Current Account Balance = -65(Deficit) ; Financial Account Balance = 515(Surplus)

Step by step solution

01

Basic Concepts 

Balance of trade shows foreign exchange inflow and outflow due to export and import of visible goods.

Current account shows foreign exchange inflow and outflow - exports & imports of visible goods & invisible services, factor incomes and unilateral transfers.

Capital or financial account shows foreign exchange inflow and outflow due to change in asset liability status of the country's economy.

02

Numeric Solution 

BalanceofTrade=MerchandiseExports-MerchandiseImports=500-600=-100Deficit

CurrentAccountBalance=Merchandiseandservicesexportsandimports+NetUnilateralTransfers=500+75-600-50+鈥�10=-65Deficit

FinancialAccountBalance=Inflowfromnetchangeinforeignassetsathome-outflowfromnetchangeindomesticliabiltiesabroad=300-(-215)鈥�=515Surplus

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Most popular questions from this chapter

Distinguish between the balance of trade and the balance of payments and identify the key accounts within the balance of payments

Suppose that during a recent year for the United States, merchandise imports were \(2trillion, unilateral transfers were a net outflow of \)50.2trillion, service exports were \(0.2trillion, service imports were \)0.1trillion, and merchandise exports were $1.4trillion.

a. What was the merchandise trade deficit?

b. What was the balance on goods and services?

c. What was the current account balance?

Suppose that during a recent year for the United States, merchandise imports were \(2trillion, unilateral transfers were a net outflow of\)0.2trillion, service exports were trillion, service imports were\(0.1trillion, and merchandise exports were\)1.4trillion.

a. What was the merchandise trade deficit?

b. What was the balance on goods and services?

c. What was the current account balance?

Determine if each of the following items results in a surplus or deficit in the current account of the balance of payments.

a. A Central European corporation offers products to a chain of hobby stores in the United States.

b. Japanese citizens pay a U.S. travel agency to arrange hotel accommodations, ground transportation, and tours of many U.S. cities, including New York, Chicago, and Orlando.

c. A Mexican corporation hires an accounting firm in the United States to audit its financial accounts.

d. Following a severe earthquake in Pakistan, churches and mosques in the United States contribute humanitarian aid to the country.

e. A Canadian corporation supplies raw materials to a US microprocessor maker.

On Wednesday, the exchange rate between the Japanese yen and the U.S. dollar was \(0.010 per yen. On Thursday, it was \)0.009. Did the dollar appreciate or depreciate against the yen? By how much, expressed as a percentage change?
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