Answer to Question 2:

You own some British Government Bonds which you sell through your broker to a recent immigrant from the U.K. who is speculating on the outcome of the British election. This transaction will appear in the domestic balance of payments as an inflow of capital.

True or False?

The correct answer is False. The purchaser of the British security is a domestic resident. The fact that the security is a foreign security is irrelevant. What matters is whether the person on the other side of the transaction is a domestic or foreign resident. The balance of payments delineates those transactions that, because they involve foreign residents, lead to an exchange of domestic and foreign currency on the international market.

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