Complete the following table by indicating the effect each o

Complete the following table by indicating the effect each of the following transactions has on U.S. net capital outflow and whether it involves direct investment or portfolio investment. Effect on Net Capital Outfloww Type of Investment Involved Transaction Samsung sells stock to the General Electric pension fund. Sony expands its corporate office in New York. An American financial company establishes an office in London. A Goldman Sachs mutual fund sells its Sony stock to a British investor. (Note Assume the British investor pays in U.S. dollars.)

Solution

Transaction Effect on Net capital Outflow Type of investment involved Samsung sells stock to the General Electric pension fund Increases because the U.S company makes a portfolio investment in the foreign country. Portfolio Investment Sony expands its corporate office in New york Decreases because the foreign company makes a direct investment in capital in U.S Direct Investment An American financial company establishe an office in London Increases because U.S company makes a direct investment in capital in foreign country. Direct Investment A Goldman sachs mutual fund sells its Sony stok to a british investor. Decreases (if the british investor pays its U.S dollars) because U.S company is reducing its portfolio investment in a foreign country. Portfolio investment Happy or Unhappy U.S Pension funds holding U.K government bonds Unhappy U.S agricultural industries Unhappy because their prices would be higher in terms of foreign currencies which would reduce their sales abroad. Mexican toursits planning a trip to the United states Unhappy because they would get fewer U.S dollars for each Mexican peso , so their vacation will be more expensive. A British firm trying to purchase property in the United states Unhappy Because it would get less units of the U.S dollars and could thus buy less property in the U.S.