For the Following Questions Assume the Following Facts

question 12

Multiple Choice

For the following questions assume the following facts:
(1) Balance of Payments = 0 prior to the transactions.
(2) Person A (who lives in the United States) purchases an airplane from British Airways for $150,000.
(3) Person A pays with a check from his account at First Union Bank in the United States.
(4) British airways, since it will need dollars in 1 month, deposits the check at the Bank of England.
(5) Bank of England deposits the $150,000 at Commonwealth bank, which is located in the United States.
Due to the transactions above, what are the effects on the reserve at the Fed?

• A) Fact 2 is a decrease of $150,000, fact 5 is a decrease of $150,000, a net effect of -$300,000.
• B) Fact 3 is a decrease of $150,000, fact 5 is an increase of $150,000, a net effect of 0.
• C) Fact 3 is an increase of $150,000, fact 5 is a decrease of $150,000, a net effect of 0.
• D) Both fact 3 and fact 5 result in increases of $150,000, a net effect of +$300,000.
• E) Both fact 3 and fact 5 result in decrease of $150,000, a net effect of -$300,000.

---

Definitions:

US GAAP

United States Generally Accepted Accounting Principles, the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC).

IFRS

International Financial Reporting Standards, a set of accounting guidelines that govern how financial statements are prepared worldwide.

Reporting Units

Entities for which discrete financial information is available and reviewed by the segment manager to make operating decisions.

Outstanding Stock

The total number of shares of a corporation's stock that are currently owned by all shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.