Calculate and record the following entries in the U.S. balance of payments accou

Question

Calculate and record the following entries in the U.S. balance of payments accounts as applicable:

a) The U.S. government uses its foreign demand deposits to purchase $8 from private foreigners in the U.S.

b) American tourists spend $30 abroad using traveler's checks drawn on U.S. banks.

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

d) The U.S. exports $300 of goods and receives payment abroad in the form of foreign demand deposits.

e) U.S. citizens purchase foreign stocks with $60, using foreign demand deposits held abroad.

f) The U.S. imports $225 of goods and pays for them by drawing down its foreign demand deposits.

g) The U.S. pays $15 to foreigners in dividends drawn on U.S. demand deposits.

Explanation / Answer

a) The U.S. government uses its foreign demand deposits to purchase $8 from private foreigners in the U.S. - This is recorded under debit side of capital account

b) American tourists spend $30 abroad using traveler's checks drawn on U.S. banks - This is recorded under debit side of current account of BOP.

c) The U.S. government sells abroad $45 in gold for foreign demand deposits.- This is recorded under credit side of capital account

d) The U.S. exports $300 of goods and receives payment abroad in the form of foreign demand deposits- This is recorded under credit side of current account of BOP.

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