If a U.S. firm borrows from an American bank and then converts that money to euros to buy French wine, it will be accounted for as a(n) _____ account.
A) subtraction from the U.S. capital
B) addition to the U.S. current
C) subtraction from the U.S. current
D) addition to the U.S. capital

Question

Quizplus · Accepted Answer

When the US firm converts their US dollars to euros to buy French wine, this creates a current account deficit for the United States, as there is an outflow of currency from the US to a foreign country. Therefore, it is subtracted from the US current account.

If a US Firm Borrows from an American Bank and Then Converts