The Balance of Payments

1.) Which of the following international transactions would NOT be counted as a balance of

payments (BOP) transaction?

A) An American tourist purchases cheese in Milwaukee, Wisconsin.

B) The U.S. subsidiary of a British firm pays profits (dividends) back to its parent firm in

London.

C) A Canadian lumber baron purchases a U.S. corporate bond through an investment broker in

Seattle.

2.) An American tourist purchases a leather jacket while in Italy. Where does this belong on the

US BOP statement, and is this a debit or a credit?

3.) True or False, and please explain: Like a balance sheet, the Balance of Payments adds up the

value of all assets and liabilities of a country on a specific date.

4.) The measurement of all international economic transactions that take place between the

residents of a country and foreign residents is called the balance of payments (BOP). List and

explain three reasons why host-country BOP data is important to managers and investors.

5.) Please refer to Slide 21 (Exhibit 3.4) Explain the trend in the US economy and BOP that this

graph depicts.

6.) What effect should low interest rates in the US have on the BOP statement and why?