Question

State whether each of the following events involves a financial flow to the U.S. economy or away from the U.S. economy:

a) Purchase of U.S. government bonds by a foreign investor
b) American company investing in a foreign firm
c) Repayment of a loan by a U.S. firm to a foreign bank
d) Foreign direct investment in the U.S.

Answer 1

The purchase of U.S. government bonds by a foreign investor and foreign direct investment in the U.S. are both financial flows to the U.S. economy.

Step-by-step explanation:

The question involves analyzing various economic transactions to determine their impact on financial flows to or from the U.S. economy.

• Purchase of U.S. government bonds by a foreign investor would involve a financial flow to the U.S. economy, as foreign capital is being used to purchase U.S. assets.
• An American company investing in a foreign firm would represent a financial flow away from the U.S. economy, as capital is being invested outside the U.S.
• Repayment of a loan by a U.S. firm to a foreign bank translates to a financial flow away from the U.S. economy, as the U.S. firm sends money to a foreign entity.
• Foreign direct investment in the U.S. results in a financial flow to the U.S. economy, because foreign entities are investing their funds into U.S. assets or businesses.