Suppose that the following transactions take place on the U.S. balance of payments during a given year. Analyze the effects on the merchandise trade balance, the international investment income account, the current account, the capital account, and the official settlements account.
a. Boeing, a U.S. aerospace company, sells $3 billion of its 747 airplanes to the People’s Republic of China, which pays with proceeds from a loan from a consortium of international banks.
b. Mitsubishi UFJ Financial Group purchases $70 million of 30-year U.S. Treasury bonds for one of its Japanese clients. Mitsubishi draws down its dollar account with Bank of America to pay for the bonds.
c. Eli Lilly, a U.S. pharmaceutical company, sends a dividend check for $25,255 to a Canadian investor in Toronto. The Canadian investor deposits the check in a U.S. dollar-denominated bank account at the Bank of Montreal.
d. The U.S. Treasury authorizes the New York Federal Reserve Bank to intervene in the foreign exchange market. The New York Fed purchases $5 billion with Japanese yen and euros that it holds as international reserves.
e. The president of the United States sends troops into a Latin American country to establish a democratic government. The total operation costs U.S. taxpayers $8.5 billion. To show their support for the operation, the governments of Mexico and Brazil each donate $1 billion to the United States, which they raise by selling U.S. Treasury bonds that they were holding as international reserves.
f. Honda of America, the U.S. subsidiary of the Japanese automobile manufacturer, obtains $275 million from its parent company in Japan in the form of a loan to enable it to construct a new state-of-the-art manufacturing facility in Ohio.