Answer to Question #59887 in Macroeconomics for bright asante

Question

Explain how each of the following transactions enters the Nigerian balance of
payments accounts. Indicate the specific component of the BOP account that is
affected by each transaction. Discuss only the transactions described. Do not be
concerned with possible offsetting transactions.
a) The Nigerian government sells 20m barrels of oil to Ghana.
b) The Central Bank of Nigeria sells dollars to and buys Niara from the US
Federal Reserve.
c) Guaranty Trust Bank Plc (Nigeria) receives interest on loans it has made to
Ghanaian companies.
d) A Nigerian Bank borrows from a Ghanaian bank.
e) A Nigerian oil company buys insurance from a British insurance company to
insure its oil rigs in the Niger Delta

Answer 1

a) The Nigerian government sells 20m barrels of oil to Ghana, so exports increases and current account increases.
b) The Central Bank of Nigeria sells dollars to and buys Niara from the US Federal Reserve, so capital account decreases.
c) Guaranty Trust Bank Plc (Nigeria) receives interest on loans it has made to Ghanaian companies, so factor earnings increase and current account increases.
d) A Nigerian Bank borrows from a Ghanaian bank, so factor payments increase and current account decreases.
e) A Nigerian oil company buys insurance from a British insurance company to insure its oil rigs in the Niger Delta, so capital account decreases.