Question

Indicate how the investment transactions would affect the statement of cash flows for the year, assuming that the company uses the indirect method in reporting cash flows from operating activities?

Answer 1

Foreign investments in U.S. stocks and bonds increase current account balance, while an increasing trade deficit decreases it. Financial flows to or from the Mexican economy depend on the direction of investments, loans, and remittances.

Step-by-step explanation:

When foreign investors buy more U.S. stocks and bonds, it would increase the capital inflow into the U.S., which is recorded as a financial inflow in the current account. This would increase the current account balance.

If the trade deficit of the United States increases, it means that the country is importing more goods and services than it is exporting. This would lead to an outflow of funds to pay for imports, which would decrease the current account balance.

Financial flows to the Mexican economy include foreign investments in Mexican stocks and bonds, loans provided by international banks to Mexican companies, or remittances from Mexicans living abroad. Financial flows out of the Mexican economy include Mexican investments in foreign stocks and bonds, loans provided by Mexican banks to foreign companies, or payments made by Mexicans abroad.