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.

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