US residents purchase $2,000 in stocks of Japanese firms and $1,500 in stocks of

Question

US residents purchase $2,000 in stocks of Japanese firms and $1,500 in stocks of Canadian firms. Biggby Coffee (Lansing company) opens a coffee shop in Montreal, Canada, using $500 and Caterpillar (firm based in US) builds a factory in Mexico using $2,000. German residents purchase $3,000 in stocks of US firms, and Italian residents purchase $1,000 in stocks of US firms. The Japanese government purchases $1,000 in US government bonds, the Chinese government purchases $3,000 in US government bonds. The US government purchases $2,000 in Mexican bonds, and $1,000 in Brazilian bonds. BMW (of Germany) builds a plant in Michigan using $3,000.

What is the Net Capital Outflow from the US?________________________

How much of NCO is from Foreign Direct Investment? _________________

How much of NCO is from Foreign Portfolio Investment?________________

Using this information what is your estimate of Net Exports for the US?_________

Explanation / Answer

Question 1

Calculate Net capital outflow from the US -

NCO = [Purchase of stocks of Japanese firms by US residents + Purchase of stocks of Canadian firms by US residents + Biggby Coffee (Lansing company) opens a coffee shop in Montreal, Canada + Caterpillar (firm based in US) builds a factory in Mexico + US government purchases Mexican Bonds + US government purchases Brazilian bonds] - [Purchase of stocks in US firms by Germans + Purchase of stocks in US firms by Italians + BMW (of Germany) builds a plant in Michigan + US bonds purchased by Chinese government + US bonds purchased by Japanese government]

NCO = [$2,000 + $1,500 + $500 + $2,000 + $2,000 + $1,000] - [$3,000 + $1,000 + $3,000 + $3,000 + $1,000]

NCO = $9,000 - $11,000

NCO = -$2,000

The Net Capital Outflow from the US is -$2,000.

Question 2

Calculate NCO from Foreign Direct Investment -

NCO = [Biggby Coffee (Lansing company) opens a coffee shop in Montreal, Canada + Caterpillar (firm based in US) builds a factory in Mexico] - [BMW (of Germany) builds a plant in Michigan]

NCO = $500 + $2,000 - $3,000 = -$500

The NCO from Foreign Direct Investment is -$500.

Question 3

Calculate the NCO from Foreign Portfolio Investment -

NCO = [Purchase of stocks of Japanese firms by US residents + Purchase of stocks of Canadian firms by US residents + US government purchases Mexican Bonds + US government purchases Brazilian bonds] - [Purchase of stocks in US firms by Germans + Purchase of stocks in US firms by Italians + US bonds purchased by Chinese government + US bonds purchased by Japanese government]

NCO = [$2,000 + $1,500 + $2,000 + $1,000] - [$3,000 + $1,000 + $3,000 + $1,000]

NCO = $6,500 - $8,000 = -$1,500

The NCO from Foreign Portfolio Investment is -$1,500.

Question 4

Calculate Net exports for the US -

Net exports equals net capital outflow.

So,

The net exports for the US is -$2,000.

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.