Indicate whether each of the following items represents a debit or a credit on the U.S. balance-of-payments:

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Indicate whether each of the following items represents a debit or a credit on the U.S. balance-of-payments:

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.

Answer & Explanation (1)

Explanation

Debit on the balance-of-payments

a
d
e
f
h
i

Importing wine from a foreign country leads to payment of dollars to Country F, therefore this item is debited on the balance-of-payments of Country U.
 
When a student of Country U spends a year studying in Country S, it leads to payment of dollars to Country S. Therefore, this item is debited on the balance-of-payments of Country U.
 
When Country U donates food to people in Country A, it leads to payment of dollars to buy food for donation. Therefore, this item is debited on the balance-of-payments of Country U.
 
When the investors of Country J collect interest income on their holdings of government securities of Country U, it leads to payment of dollars to Country J’s investors. Therefore, this item is debited on the balance-of-payments of Country U.
 
When a foreign country sells an insurance policy to a business firm in Country U, it leads to payment of dollars to that Country. Therefore, this item is debited on the balance-of-payments of Country U.
 
When a resident of Country S receives dividend on a stock of Country U, it leads to payment of dollars to that resident. Therefore, this item is debited on the balance-of-payments of Country U.

Credit on the balance-of-payments

b
c
g

Investment in Country U by a foreign firm from Country F in terms of establishment of an assembly plant leads to receipts of dollars from foreigners. Therefore, this item is credited on the balance-of-payments of Country U.
 
When Country B uses a vessel produced in Country U, it leads to receipts of dollars from Country B. Therefore, this item is credited on the balance-of-payments of Country U.
 
When a resident of Country G sends money to her relative in Country U, it leads to receipt of dollars from Country G. Therefore, this item is credited on the balance-of-payments of Country U.

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