Ben HickmanFIN480AtkinsT/Th 2:20pmChapter 4 Homework1. The main institution that provides the primary source of similar statistics for the balance of payments is the International Monetary Fund. 2. A country’s BOP is very important because it can give many important signalsto investors and managers. For example, a change in a country’s BOP may signal some kind of removal of controls over payment of dividends and interest, license fees, and other fees. Also, BOP can help forecast a country’s market short potential. Lastly, BOP is an important to investors because it has the potential to predict the imposition of foreign exchange controls. 3. The two main types of economic activity measured by countries BOP are capital and financial transactions such as portfolio investments like bonds or common stock. 4. BOP always balances because the sum of the all flows that are accounted in the current account and capital and financial should always equal the changes in monetary reserves. The imbalance between the two sides of the equation make up a variable called “errors and omissions” which makes the equation balance. 5. A country’s balance of payments would be a cash out flow on a cash flows statement. 6. Trade in GoodsDebit- German firm purchases from US for goodsCredit- US buys goods from ChinaTrade in ServicesDebit- US citizen goes to Mexico for Vacation Credit-A Mexican citizen goes on a cruise in Spain. Income Payments and Receipts Debit- Russia company pays out dividends to holders in SpainCredit- A Russian company buys common equity from a Swiss company.Unilateral Current TransactionsDebit- Swiss pays for US schooling Credit-Mexico pays US for border patrol 7. Real assets are goods and useful services and financial assets are ones that are stocks and bonds.8. Direct foreign investments are investments that have some kind of intent thatthe investor will have some sort of control over the asset. A portfolio purchase is when the investor has only less than 10% of the voting shares. 12. All of the laundered money and illegal activity flow through the errors and omissions section of the equation making it equal out. 13. The US dollar has maintained or increased in value despite the gradually increasing current account deficit because the unbalance was caused by an inflow of dollars on capital