Subpart (a):
Change in reserves.
Subpart (a):
Explanation of Solution
Change in reserves are calculated as follows:
The change in official reserves is $5.
Concept introduction:
Current account: It is the account of the exports and imports of goods and services along with the grants, unilateral payments, and aids of a country in a year. It includes all the short-term transactions.
Capital account: The capital account does not deal with the imports and exports of a country. It deals with the transactions of the purchase and the sale of foreign assets and liabilities over time, which is the financial account. Thus, it is the long-term account.
Subpart (b):
Capital account.
Subpart (b):
Explanation of Solution
Capital account is calculated as follows:
The capital account is $7.
Concept introduction:
Current account: It is the account of the exports and imports of goods and services along with the grants, unilateral payments, and aids of a country in a year. It includes all the short-term transactions.
Capital account: The capital account does not deal with the imports and exports of a country. It deals with the transactions of the purchase and the sale of the foreign assets and liabilities over time, which is the financial account. Thus, it is the long-term account.
Subpart (c):
Current account and capital account.
Subpart (c):
Explanation of Solution
The current account is calculated as follows:
The current account is -$8,000.
Since the balance of payment is balanced, the capital account must be +$8,000.
Concept introduction:
Balance of Payments: It is a record of all the transactions of income flow into the country and out of the country with the rest of the world in a particular time period. Thus, it is the record of the transactions of the people of a country with the rest of the world.
Current account: It is the account of the exports and imports of goods and services along with the grants, unilateral payments, and aids of a country in a year. It includes all the short-term transactions.
Capital account: The capital account does not deal with the imports and exports of a country. It deals with the transactions of the purchase and the sale of the foreign assets and liabilities over time, which is the financial account. Thus, it is the long-term account.
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Chapter 20 Solutions
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