Electronics

Suppose Speaker City, an electronics retailer in the United States, pays Sony, an electronics manufacturer in Japan, $10,000 for 100 PlayStation 2 video game systems.

Sony exchanges the $10,000 at the First National Bank of Tokyo for 800,000 yen.

4.1. Assume that the U.S. current account was in balance prior to the above transaction. How does the transaction affect the current account balance?

A. The United States now runs a current account surplus.

B. The current account remains unchanged; this transaction affects only the financial account.

C. The United States now runs a current account deficit.

Suppose Speaker City, an electronics retailer in the United States, pays Sony, an electronics manufacturer in Japan, $10,000 for 100 PlayStation 2 video game systems.

Sony exchanges the $10,000 at the First National Bank of Tokyo for 800,000 yen.

4.2. Two weeks later, exchange rates change. First National Bank of Tokyo must exchange 950,000 yen for $10,000. The U.S. dollar:

A. Appreciated against the yen

B. Remained unchanged against the yen

C. Depreciated against the yen
Suppose Speaker City, an electronics retailer in the United States, pays Sony, an electronics manufacturer in Japan, $10,000 for 100 PlayStation 2 video game systems.

Sony exchanges the $10,000 at the First National Bank of Tokyo for 800,000 yen.

4.3. Given the change in the U.S. current account, the U.S. financial account _________ and the U.S. becomes a net ______.

A. Decreases; creditor

B. Decreases; debtor

C. Increases; debtor

D. Increases; creditor

4.1. – C. The United States now runs a current account deficit.
US purchases goods from JP – thus there trade deficit emerges.

4.2. – A. Appreciated against the yen
More ¥ are required to purchase same amount of $

4.3. – C. Increases; debtor
BoP = CA+KA+FA = 0
-CA = KA+FA
Current account deficit = Financial account surplus
CA deficit ? Credit < Debit
FA surplus ? ?NFA<0

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