Question

QUESTION 4 0.5 point When a Japanese investor buys stock in General Motors, which balance of payments account is affected? QUESTION S 0.5 points Suppose Sally sells a bushel of Georgia peaches to a buyer in Chile, while Greg sells a U.S. bond to a customer in France. Which illustrates the difference and/or simillarities between these two transactions? The sale of the bond to the customer in France creates a liability, while the sale of peaches does not Both sales create a liability for the U.S Only Sally will actually receive U.S. dollars as a result of this transaction Both sales create an asset for the U.S

Answer 1

Ans 4.

The Capital Account of the Balance of Payments is affected.

The capital account includes transactions that are purely claims on financial assets. The capital account records direct investments in shares, bonds, physical assets as well as portfolio investments.

Ans 5.

• The sale transaction of Georgia peaches by Sally will be recorded in the current account of the Balance of Payments as it constitutes export of goods to a foreign country. Sally's bound to receive payment for the sale of peaches to Chile, thus creating an asset for the US.
• Greg's US bond sale to a customer in France will be recorded in the capital account of the Balance of Payments as it constitutes a claim on a financial asset. International bonds are issued in the host country currency. In the given question, the US bond is issued in Euro, i.e., the currency of France. International bonds are subject to foreign exchange risk. However, Greg is entitled to receive the interest payable on the bond and the full amount of the bond at maturity. As such, Greg's transaction has created an asset for the US.

From the above two explanations, it is clear that both the transactions have created an asset for the US. So, the correct option is D -Both sales create an asset for the US.