A German manufacturer of furniture sells a large order of home furnishings to an outlet store in Houston. The Houston firm pays for the shipment by wiring funds from its local bank through Fed wire to the German firm's account at J.P. Morgan Chase Bank in New York City. Subsequently, the German manufacturer decides to invest half of the funds received in a dollar deposit offered by Barclays Bank in London, where interest rates are particularly attractive. No sooner are the funds deposited in London than a Japanese auto company, shipping cars to the U.S. and Europe, asks the London bank for a loan to purchase raw materials in the United States. Later, when the loan falls due, the Japanese firm will go into the currency market to purchase dollars in order to retire its Eurodollar loan at Barclays Bank, receiving a dollar deposit at a U.S. bank. When the loan is repaid, Barclays gains the dollar deposit in the United States and uses the deposit to pay off the German firm when its time deposit matures. The German firm chooses to deposit the funds received from Barclays in its demand deposit account at J.P. Morgan Chase Bank in New York City because it now needs to buy goods and services in the United States.
Construct T accounts that reflect the foregoing transactions. In particular, show the proper entries for: (1) payment by the Houston firm to the German furniture company; (2) deposit of the funds in London; (3) the loan to the Japanese automaker; (4) repayment of the loan; and (5) return of funds to the United States. Indicate which deposit is a Eurodollar deposit and if any Eurodollars are destroyed at any particular stage.

Question

A German manufacturer of furniture sells a large order of home furnishings to an outlet store in Houston. The Houston firm pays for the shipment by wiring funds from its local bank through Fed wire to the German firm's account at J.P. Morgan Chase Bank in New York City. Subsequently, the German manufacturer decides to invest half of the funds received in a dollar deposit offered by Barclays Bank in London, where interest rates are particularly attractive. No sooner are the funds deposited in London than a Japanese auto company, shipping cars to the U.S. and Europe, asks the London bank for a loan to purchase raw materials in the United States. Later, when the loan falls due, the Japanese firm will go into the currency market to purchase dollars in order to retire its Eurodollar loan at Barclays Bank, receiving a dollar deposit at a U.S. bank. When the loan is repaid, Barclays gains the dollar deposit in the United States and uses the deposit to pay off the German firm when its time deposit matures. The German firm chooses to deposit the funds received from Barclays in its demand deposit account at J.P. Morgan Chase Bank in New York City because it now needs to buy goods and services in the United States.
 Construct T accounts that reflect the foregoing transactions. In particular, show the proper entries for: (1) payment by the Houston firm to the German furniture company; (2) deposit of the funds in London; (3) the loan to the Japanese automaker; (4) repayment of the loan; and (5) return of funds to the United States. Indicate which deposit is a Eurodollar deposit and if any Eurodollars are destroyed at any particular stage.

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The Answer of A German manufacturer of furniture sells a large order of home furnishings to an outlet store in Houston. The Houston firm pays for the shipment by wiring funds from its local bank through Fed wire to the German firm's account at J.P. Morgan Chase Bank in New York City. Subsequently, the German manufacturer decides to invest half of the funds received in a dollar deposit offered by Barclays Bank in London, where interest rates are particularly attractive. No sooner are the funds deposited in London than a Japanese auto company, shipping cars to the U.S. and Europe, asks the London bank for a loan to purchase raw materials in the United States. Later, when the loan falls due, the Japanese firm will go into the currency market to purchase dollars in order to retire its Eurodollar loan at Barclays Bank, receiving a dollar deposit at a U.S. bank. When the loan is repaid, Barclays gains the dollar deposit in the United States and uses the deposit to pay off the German firm when its time deposit matures. The German firm chooses to deposit the funds received from Barclays in its demand deposit account at J.P. Morgan Chase Bank in New York City because it now needs to buy goods and services in the United States.
 Construct T accounts that reflect the foregoing transactions. In particular, show the proper entries for: (1) payment by the Houston firm to the German furniture company; (2) deposit of the funds in London; (3) the loan to the Japanese automaker; (4) repayment of the loan; and (5) return of funds to the United States. Indicate which deposit is a Eurodollar deposit and if any Eurodollars are destroyed at any particular stage.

A German Manufacturer of Furniture Sells a Large Order of Home