Investment 101

In: Business and Management

Submitted By nonno
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1. What is the investment income account of the balance of payments?
Investment income account includes: a. Direct foreign investment (Investment in fixed assets in foreign countries that can be used to conduct business operations to earn revenue.) b. Portfolio investment (Investment in long-term financial assets like stocks and bonds to earn dividends or interests between countries that do not affect the transfer of control.) c. Other capital investment (Investment in short-term financial assets like money market securities between countries to earn interests.)

2. What is the official settlements account of the balance of payments? How are official settlements deficits and surpluses associated with movements in the international reserves of the balance of payments?
Official settlement account is the sum of the current account, the capital account, the non-reserve financial account, and the statistical discrepancy.
Official settlements offset international reserves. Official settlements surplus increase official reserve assets. Official settlements deficits decrease official reserve assets.

3. Explain why private national saving plus government saving equals the current account of the balance of payments. a. National income on expenditure = C+I+G+X-M b. National income on disposal = C+S+T c. Because expenditure = disposal, therefore C+I+G+X-M=C+S+T d. We can see X-M=(S-I)+(T-G) e. So Current asset equals to private national saving plus government saving

4. Suppose that the following transactions take place on the U.S. balance of payments during a given year. Analyze the effects on the merchandise trade balance, the international investment income account, the current account, the capital account, and the official settlements account.

a. Boeing, a U.S. aerospace company, sells $3 billion of its 747 airplanes…...

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