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Chapter 3

1. Classify the following as a transaction reported in a subcomponent of the current account or the capital and financial
accounts of Vietnam:

a. A U.S. insurance firm pays for losses of Carina Plaza (District 8) due to the fire in Mar, 2018.

Solution: CA, service trade, “+”

b. Vietnam Airlines purchases jet fuel at Hong Kong International Airport.

c. BIDV - Vietnam buys shares of stock on the Stock Exchange of Singapore.

d. Vinamilk purchases milk powder from a New Zealand company.

e. The Vietnamese Government pays the salary of ambassador working in the Vietnamese Embassy in the Netherlands.

f. A Vietnamese shipping company pays USD to the Egyptian government for passage of a ship through the Suez Canal.

g. FPT – Vietnam pays the salary of its manager working in FPT Japan.

h. A Vietnamese tourist pays for a Nikon Camera of $1,500 in Tokyo with her HSBC credit card and carries the camera
with him back to Vietnam.

i. A Vietnamese tourist pays for a hotel in Da Nang with her HSBC credit card.

k. The State Bank of Vietnam sell bonds of VND 10 billion to Vietcombank.

l. The State Bank of Vietnam sell $1 billion of its reserves to prevent the depreciation of the VND.

m. Vietnam sends $200,000 to victims of storms in the Philippines.

n. A Vietnamese singer migrates to the U.S. She sells her house in Phu My Hung, gets $10m and brings it to the U.S.

o. Samsung sells a patent ownership to FPT - Vietnam.

2. Classify the following as a transaction reported in a subcomponent of the current account, the capital and financial
accounts or the official settlements account of the U.S. BoP, using double entry bookeeping:

a. The U.S. Treasury authorizes FED to intervene in the foreign exchange market. FED uses Japanese yen and euros that it
holds as international reserves to buy $5 billion
FA, other investments, “+” [capital inflow to the U.S. economy]
Official reserves , “ +” [International reserves decrease, so “+” ]
b. Honda of America, the U.S. subsidiary of the Japanese automobile manufacturer, receives $275 million from its parent
company in Japan to build a new factory in Texas. The parent company sends the fund using its dollar deposit at Mizuho,
c. CGV Vietnam buys the movie the Shape of Water from a U.S. company. The payment is drawn from GCV’s deposit
account in Vietcombank.

3. True or false? Explain

a. Nation running a current account surplus is accumulating foreign assets.

b. Because the balance of payments accounts must balance, sub-accounts like the current accunt, financial
account must balance, too.
c. If a country whose investment exceeds saving, that country has a negative CA.
d. If a country whose total consumption exceeds gross national income, that country either increases its asset
acquisition or increases it foreign investment.
e. Decrease tax helps reduce the CA deficit (assume other factors remain unchanged).