For the following question assume the following facts:
(1)Balance of Payments = 0 prior to the transactions.
(2)Person A (who lives in the United States) purchases an airplane from British Airways for $150,000.
(3)Person A pays with a check from his account at First Union Bank in the United States.
(4)British airways, since it will need dollars in 1 month, deposits the check at the Bank of England.
(5)Bank of England deposits the $150,000 at Commonwealth bank, which is located in the United States.
Due to the transactions above, what are the effects on the balance of payments?

Question

Quizplus · Accepted Answer

The purchase of the airplane is recorded as a debit in the current account because it's an import. The deposit by the Bank of England in the United States is a capital inflow, recorded as a credit in the capital account. The balance of payments remains zero because the debit in the current account is offset by the credit in the capital account.

For the Following Question Assume the Following Facts