What are the effects on the French balance of payments of the following set of transactions?
Les Fleurs de France, the French subsidiary of a British company, The Flowers of Britain, has just received €4.4 million of additional investment from its British parent. Part of the investment is a €0.9 million computer system that was shipped from Britain directly. The €3.5 million remainder was financed by the parent by issuing euro denominated Eurobonds to investors outside of France. Les Fleurs de France is holding these euros in its Paris bank account.
The €4.4 million of additional investment from the British parent to the French subsidiary is an increase in the foreign ownership of French assets, which is a credit on the French balance of payments. There is an import of €0.9 million for the computer system that is a debit on the French balance of payments. The remaining €3.5 million, corresponding to the funds that were borrowed abroad by Flowers of Britain and are now being held by Fleur de France, represents a decrease in foreign ownership of French assets.
French BOP Credit Debit
Increase in the direct foreign ownership of French assets by Flowers of Britain
(Capital account; French Capital inflow) €4.4 million
Computer system that was shipped from Britain to France
(Current account; French import) €0.9 million
Decrease in Foreign ownership of French assets by Flowers of Britain
(Capital account; French Capital outflow) €3.5 million
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