Final answer:
The statement of cash flows does not address the impact of inflation on cash balances. It provides details about cash inflows and outflows, changes in cash balance during the period, but inflation's effect on cash balance is not included in this financial statement.
Step-by-step explanation:
The statement of cash flows is a financial report that provides information about a company's cash inflows and outflows over a specific period. It answers several key questions about a company's cash position, but it does not address the impact of inflation on cash balances, making option C the correct answer to the question asked by the student.
Self-Check Questions
Here are explanations for the self-check questions related to cash flows and economic concepts:
- When foreign investors buy more U.S. stocks and bonds, this would result in financial inflows, but it appears in the financial account, not the current account balance of the balance of payments.
- If the trade deficit of the United States increases, it means that imports exceed exports, and hence, the current account balance declines, indicating more money flowing out of the country than coming in from trade.
- Financial flows related to the Mexican economy will depend on the nature of the transactions, but typically exports, investments, and remittances would involve inflows, while imports and debt repayments would involve outflows.
Bank Balances and Loan Valuation Insights
- The money listed under assets on a bank balance sheet may not actually be in the bank due to fractional-reserve banking, where banks only keep a fraction of deposits on hand and lend out the rest.
- Changes in the valuation of loans in the secondary market can be affected by:
Trade and Current Account Correlation
The trade balance correlates closely with the current account balance as trade in goods and services is a substantial component of the current account, alongside other factors like income from abroad and current transfers.