Scenario: Global Manufacturing Inc. (GMI)
Global Manufacturing Inc., a fast-growing U.S. company, plans for a production system in which two components of its product will be manufactured in locations where the cost of production is lowest. The components will then be taken to maquiladoras for final assembly. GMI plans to purchase an existing company in Brazil to produce component A and build a subsidiary in Thailand to produce component B.
-In which of the following accounts would GMI's purchase of the company in Brazil appear?

Question

Quizplus · Accepted Answer

GMI's purchase of a company in Brazil is a cross-border investment, which affects the capital accounts of both countries involved. It represents an inflow of capital to Brazil (as a foreign company is investing in a Brazilian asset) and an outflow from the United States (as a U.S. company is investing abroad).