Question at position 1 Which of the following would be a current account transaction? A United States firm buys 5 percent of the stock of another United States firm.The United States buys $8 billion worth of euros.A United States firm builds a new factory in Kenya.A United States firm sells $500 million of its products to a Chinese company.India buys $10 billion of new United States Treasury bonds.

Question

Question at position 1  Which of the following would be a current account transaction? A United States firm buys 5 percent of the stock of another United States firm.The United States buys $8 billion worth of euros.A United States firm builds a new factory in Kenya.A United States firm sells $500 million of its products to a Chinese company.India buys $10 billion of new United States Treasury bonds.

BlackTom AI · Accepted Answer

Current account records cross-border flows of goods, services, primary income (wages, interest, dividends) and secondary income (transfers). Financial and capital account entries record cross-border purchases/sales of assets (portfolio investment, direct investment, reserves). Use these definitions to classify each option.

Step-by-step classification:
1) "A United States firm buys 5 percent of the stock of another United States firm."
- Both parties are domestic. This is a purely domestic equity transaction, not a balance-of-payments item. Therefore not a current-account (nor an international financial) transaction.

2) "The United States buys $8 billion worth of euros."
- This is an acquisition of foreign currency/foreign assets (reserve asset or financial outflow). It is a financial account/reserve transaction, not a current-account item.

3) "A United States firm builds a new factory in Kenya."
- Building a factory abroad is foreign direct investment (FDI): the U.S. firm is acquiring real/financial assets abroad. This is recorded in the financial account (a capital outflow), not the current account.

4) "A United States firm sells $500 million of its products to a Chinese company."
- This is an export of goods (a cross-border sale of merchandise). Exports are recorded as credits in the current account. The $500 million counts directly in the goods component of the current account.

5) "India buys $10 billion of new United States Treasury bonds."
- Purchase of U.S. government bonds by a foreign resident is portfolio investment (financial account inflow), not a current-account transaction.

Why the correct answer is correct:
- Exports of goods and services are the core items of the current account. The $500 million sale to China is an export (goods), so it is a current-account transaction.

Why other options are incorrect:
- Options 1, 2, 3, and 5 involve domestic-only transactions or cross-border asset purchases (financial account or reserves), not exports/imports or income/transfers.

Conclusion: The correct current account transaction is "A United States firm sells $500 million of its products to a Chinese company." This matches the provided answer.

Similar Questions

A country experiencing a current account surplus:

A project has a required return of 12.6 percent, an initial cash outflow of $42,100, and cash inflows of $16,500 in Year 1, $11,700 in Year 2, and $10,400 in Year 4. What is the net present value?

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler