International trade involves the sale of goods and services to residents in other countries (exports) and the purchase of goods and services from residents in other countries (imports). A country's balance of payments accounts keep track of the payments to and receipts from other countries for a particular time period. These include payments to foreigners for imports of goods and services, and receipts from foreigners for goods and services exported to them. Any transaction resulting in a payment to other countries is entered in the balance of payments accounts as a debit and given a negative (-) sign. Any transaction resulting in a receipt from other countries is entered as a credit and given a positive (+) sign. Balance-of-payments accounts are divided into the current account, the capital account, and the financial account. The current account records transactions that pertain to all three categories:
1) goods that refer to the import and export of physical goods,
2) services that are intangible products such as banking and insurance services, and
3) income receipts and payments that refer to income from foreign investments and payments made to foreigners investing in a country.
A current account deficit is a situation when a country imports more goods, services, and income than it exports. The opposite situation is called a current account surplus. Persistent deficits mean that one should look at the rest of the balance-of-payments accounts like the capital account and the financial account and details of double-entry bookkeeping.
Select the correct balance-of-payments account for each transaction described below.
1. A Honduran worker leaves his temporary job in the United States and returns home with six months of wages.
2. The US government purchases UK government bonds.
3. US. consumers purchase Japanese autos.