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Chapter 10: Problem 2

What economic transactions give rise to the receipt of dollars from foreigners? What transactions give rise to payments to foreigners?

Short Answer

Expert verified
Receipt of dollars from foreigners often comes from exports, investment income from abroad, foreign direct investment in our country, and remittances from citizens working abroad. Payments to foreigners often happen when we are importing goods and services, paying investment income to foreign investors, investing in foreign countries, and sending remittances to citizens living domestically from foreign workplaces.

Step by step solution

01

Transactions Earning Dollars from Foreigners

Economic transactions that may earn an individual, a company, or a country, dollars from foreigners could include exports of goods and services, investment income received from abroad (like dividends or profits from companies owned partly or completely by domestic entities), foreign direct investment (where foreign entities invest in the domestic market), and remittances from citizens working abroad.
02

Transactions Causing Payments to Foreigners

Economic transactions that often cause payments to foreigners include import of goods and services (when a domestic entity buys products or services from a foreign entity), investment income payments to foreigners (when domestic companies pay dividends or profits to foreign investors), foreign direct investments in other countries (when a domestic entity invests money in a foreign country), and remittances to citizens living domestically from foreign workplaces.

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Most popular questions from this chapter

What does the balance of international indebtedness measure? How does this statement differ from the balance-of-payments?

What is meant by the balance-of-payments?

Why has the goods and services balance sometimes shown a surplus while the merchandise trade balance shows a deficit?

What is the meaning of a surplus (deficit) on the (a) merchandise trade balance, (b) goods and services balance, and (c) current account balance?

Indicate whether each of the following items represents a debit or a credit on the U.S. balance-of-payments: a. A U.S. importer purchases a shipload of French wine. b. A Japanese automobile firm builds an assembly plant in Kentucky. c. A British manufacturer exports machinery to Taiwan on a U.S. vessel. d. A U.S. college student spends a year studying in Switzerland. e. American charities donate food to people in drought-plagued Africa. f. Japanese investors collect interest income on their holdings of U.S. government securities. g. A German resident sends money to her relatives in the United States. h. Lloyds of London sells an insurance policy to a U.S. business firm. i. A Swiss resident receives dividends on her IBM stock.
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