Assignment – Chapter 13

Question 1:

How do you record the following transactions into the US. Balance of Payments (BoP) in
2020?

1. A Japanese investor bought stocks of American Airlines Corp. It is worth $45,000,

in cash.
2. The US companies bought catfish from a company Vietnam. 234,000 USD. Payment
will be made after 3 months.
3. GM Corporation has decided to invest 1,354,000 USD in Vietnam.
4. Laos received 3,230,000 USD of ODA from the Unites States.
5. Vietnamese overseas sent ther part of income to their relatives in Vietmam. 456,000
USD. In cash.
Answer:
- The Balance of Payment (BoP) is defined as the record of all global financial
transactions made by the residents of a nation. There are three main components
to it namely current account, capital account, and financial account.
- The current account measures the inflow and outflow of goods and services into
the country.
- The capital account measures all global capital transfers and the financial account
measures investment in the business, bonds, stocks, and real estate.
1. Japanese investors bought stocks of American Airlines Corp. - It will be
credited to the Financial Account of the US.
2. The US companies bought catfish from the company Vietnam - It will be
debited to the Current Account of the US.
3. GM corporation has decided to invest in Vietnam - It will be debited to the
Financial Account of the US.
4. Laos received ODA from the US - It will be debited to the Financial
Account of the US.
5. Vietnamese overseas sent part of their income to relatives in Vietnam - It
will be debited to the Financial Account of the US.
Question 2:

Vietnamese citizens went working in Korea. They sent their income back to the families in
Vietnam, worth of $678,000. Which account is affected?; How do you record this into the
US BoP?

Answer:

- Current Account.
- A credit to the Current Account.

When people go to another country for work and send the income they make back to their
country of origin as remittances, this goes to the Current Account of a nation's Balance of
Payments. It would be recorded as a credit to this account because when money goes out, it
goes to the credit side of the U.S. BOP as it is being exported out so is leaving the economy of
the U.S.

Question 3:

How does a country behave if it has BoP Surplus?

Answer:

A balance of payments surplus means the country exports more than it imports. It provides
sufficient capital to cover all domestic production. The country might even lend outside its
borders. A surplus may boost economic growth in the short term. Increased exports boost
production in its factories, allowing them to hire more workers. In the long run, the country
becomes too reliant on export-driven growth. It must encourage its residents to spend more

Question 4:

How does a country behave if it has BoP Decifit?

Answer:

A balance of payments deficit indicates the country imports more goods, services, and capital
than it exports. To pay for its imports, it must borrow from other countries. In the long run, the
country becomes a net consumer of the world's economic output rather than a producer. Instead
of investing in future growth, it will have to go into debt to pay for consumption. If the deficit
continues long enough, the country may be forced to sell assets to pay its creditors. Natural
resources, land, and commodities are examples of such assets.
Question 5:

What are differences between a country’s GNP and GDP?. Explain the differences in the
formulas measuring GNP and GDP.

Answer:

- GDP is the total value of all final goods and services produced in an economy, within a
country's borders.
- GNP is the total value of goods and services produced by a country over a period of time,
within the borders and outside of the country.
- GNP and GDP both reflect the national output and income of an economy. The main
difference is that GNP (Gross National Product) takes into account net income receipts from
abroad.
 GDP (Gross Domestic Product) is a measure of (national income = national output =
national expenditure) produced in a particular country.
 GNP (Gross National Product) = GDP + net property income from abroad. This net
income from abroad includes dividends, interest and profit.