For each of the following transactions, explain what happens to the merchandise trade balance, current account balance, and financial account balance in both the United States and Mexico. The exchange rate is 2 Mexican pesos per U.S. dollar
(a) A Mexican firm spends 4 million pesos to buy radiology equipment from a U.S. firm. (b) A U.S. firm buys 20,000 sombreros at 20 pesos each. (c) Mexican computer firms send 200 programmers to universities in the United States, paying tuition and expenses of $3000 each. (d) A Mexican entrepreneur gives 50,000 pesos to the United Way of San Antonio, Texas. (e) Mexican investors buy $10 million worth of 30-year U.S. Treasury bonds.
(a) U.S. merchandise trade balance and current account rise $2 million, financial account declines by $2 million; Mexican merchandise trade balance and current account decline by 4 million pesos, financial account rises by 4 million pesos.
(b) U.S. merchandise trade balance and current account decline by $200,000, financial account rises by $200,000; Mexican merchandise trade balance and current account rise by 400,000 pesos, financial account declines by 400,000 pesos.
(c) U.S. merchandise trade balance is unchanged, current account balance rises by $600,000, financial account declines by $600,000; Mexican merchandise trade balance is unchanged, current account balance falls by 1.2 million pesos, financial account rises by 1.2 million pesos.
(d) U.S. merchandise trade balance is unchanged, current account balance rises by $25,000, financial account declines by $25,000; Mexican merchandise trade balance is unchanged, current account balance declines by 50,000 pesos, financial account rises by 50,000 pesos.
(e) No change in any accounts in either country.
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