Question

A negative outflow to the U.S. balance of payments is generated by the purchase of United States assets (such as United States Treasury bonds) by foreign investors and the sale of U.S. businesses and land to foreign investors.
A) True
B) False

Answer 1

Answer:

B) False

Explanation:

Not necessary. Every transactions has two parts recorded as a debit and a credit.

If the purchases of US assets (credit to US capital account, broadly include Treasury bonds, businesses and land) are funded by the sales of goods and services (debit to US current account) then it will push the US balance of payments down.

However, if those purchases are funded by the sales of foreign assets to US investors (debit to US broadly defined capital account), then it will not affect the US BOP negatively. It's the cross ownership of international investors in US assets and US investors in international assets.