A Japanese import (American export) transaction. Specifically, suppose that a Japanese retail concern

wants to import $3 billion worth of semiconductors from an American firm. Again we rely on

Simple commercial bank balance sheets to summarize our discussion (Table 8.2).

Table 8.2. Financing a Japanese import transaction

New York Bank Tokyo Bank

Assets Liabilities and net worth Assets Liabilities and net worth

Demand deposit of

American exporter

+300 billion yen (b)

Deposit of Tokyo bank

-300 billion yen (a)

Deposit in American

Bank

—300 billion yen (a)

($3 billion)

Demand deposit of

Japanese importer

—$3 billion (a)

A) Because the American exporting firm must pay its obligations in yen rather than dollars,

The Japanese importer must somehow exchange dollars for yen. It can do it by going to a Tokyo

bank and purchasing 300 billion yen for $3 billion — perhaps the Japanese importer purchases

The very same 300 billion yen which a Tokyo bank acquired in the previous Japanese export

transaction. As shown in Table 5, this purchase reduces the Japanese importer’s demand deposit

in a Tokyo bank by $3 billion, and, of course, a Tokyo bank gives up its 300 billion yen deposit in

A New York bank.

B) The Japanese importer sends its newly purchased check for 300 billion yen to the American

firm, which deposits it in a New York bank. Note the +300 billion yen deposit in the liabilities and