Deck 11: The Balance of Payments

Question 1

The current account includes

A)the value of trade in merchandise.
B)services.
C)unilateral transfers.
D)All of the above.

Answer 1

D

Question 2

Direct investment and security purchases are included in

A)current account items.
B)capital account items.
C)basic balance account items.
D)unilateral transfers.

Answer 2

B

Question 3

________ is necessary to "balance" the BOP statement.

A)Reserve inflow
B)Statistical discrepancy
C)Debit transaction
D)Credit transaction

Answer 3

B

Question 4

The balance of trade records

A)trade in financial assets.
B)the current account plus long-term capital.
C)the value of merchandise exports minus imports.
D)short-term capital plus the basic balance.

Question 5

Debit entries on the Balance of Payments are the entries that would

A)mean a loss of foreign exchange.
B)bring foreign exchange into the country.
C)indicate a surplus exists.
D)exist at the bottom line after all accounts are totaled.

Question 6

________ indicates whether a country is a net borrower from or lender to the rest of the world.

A)The basic balance
B)The liquidity balance
C)The capital account
D)The current account

Question 7

A current account surplus implies that

A)the country is a net lender with the rest of the world.
B)the country is running a net capital account surplus.
C)foreign investment in domestic securities is at very low levels.
D)All of the above.

Question 8

The excess of total credits over total debits in the current and private capital accounts is called the

A)BOP deficit.
B)BOP surplus.
C)official settlements account surplus.
D)official settlements account deficit.

Question 9

With floating exchange rates,BOP equilibrium is restored by

A)trade restrictions.
B)earnings from foreign investments.
C)exchange rate changes.
D)All of the above.

Question 10

In the BOP,travel and tourism are included in

A)unilateral transfers.
B)the capital account.
C)the merchandise account.
D)the services account.

Question 11

Merchandise exports minus imports equal the

A)basic balance.
B)liquidity balance.
C)official settlements balance.
D)balance of trade.

Question 12

Security purchases in the United States by foreigners is

A)a credit item in the current account.
B)a debit item in the capital account.
C)a credit item in the capital account.
D)a debit item in the current account.

Question 13

Current account deficits are offset by

A)the liquidity balances.
B)capital account surpluses.
C)the basic balance.
D)balance of trade surpluses.

Question 14

________ is the largest international debtor in the world.

A)Brazil
B)Mexico
C)Italy
D)The United States

Question 15

Which of the following is included in the capital account in the BOP?

A)US-owned assets abroad
B)US-owned assets in the US
C)Unilateral transfers
D)All are included in the capital account.

Question 16

The U.S.Balance of Payments is constructed by

A)the U.S. Department of Labor.
B)the U.S. Department of Agriculture.
C)the U.S. Department of Commerce.
D)the Council of Economic Advisers to the President.

Question 17

The payment of a dividend by an American company to a foreign stockholder represents

A)a debit in the U.S. capital account.
B)a credit in the U.S. current account.
C)a credit in the U.S. official reserve account.
D)a debit in the U.S. current account.

Question 18

Which of the following transactions is a debit in the US current account?

A)Export of merchandise
B)Export of services
C)Gifts to foreigners
D)Foreign bond purchases

Question 19

The current account is equal to

A)S - I.
B)C + I + G + X.
C)I + X.
D)T - G.

Question 20

Interest earned on foreign holdings of U.S.federal,state and local government debt are recorded in the

A)services account.
B)merchandise account.
C)transfers account.
D)capital account.

Question 21

The United States became a net international debtor in 1985 for the first time since World War I.

Question 22

A current account deficit implies that

A)the country is a net lender with the rest of the world.
B)the country is running a net capital account surplus.
C)foreign investment in domestic securities is at very low levels.
D)All of the above.

Question 23

International free trade always hurts the nations that run deficits,and benefits the nations that run surpluses.

Question 24

The United States finances current account deficits largely with dollars and,as a result,faces almost no constraint on its ability to run deficits.

Question 25

With flexible exchange rates,central banks do not have to finance deficits because BOP equilibrium is restored by changes in exchange rates.

Question 26

National saving minus investment equals the current account.

Question 27

The payment of a dividend by a foreign company to an American stockholder represents

A)a debit in the U.S. capital account.
B)a credit in the U.S. current account.
C)a credit in the U.S. official reserve account.
D)a debit in the U.S. current account.

Question 28

With fixed exchange rates,central banks must finance trade deficits,allow a devaluation,or else use trade restrictions to restore equilibrium.

Question 29

The Balance of Payments always balances.

Question 30

In the mid 1980s,the massive current account deficits were related to massive U.S.government budget deficits.

Question 31

It is possible for every nation to have BOP surpluses.

Question 32

If a country has a large deficit in its current account

A)it has a large surplus in its financial account.
B)it exports more than it imports.
C)it is a net creditor to the rest of the world.
D)None of the above are necessarily true.

Question 33

The current account must necessarily always be in balance.

Question 34

In basic terms,the current account is equal to

A)imports plus exports.
B)savings minus consumption.
C)exports minus imports.
D)savings plus exports.

Question 35

In international finance,what does SDR stand for?

A)Special Drawing Rights.
B)Single Deposit Reserve.
C)Savings Deposit Ratio.
D)Single Demand Remittance.

Question 36

Current account surpluses are offset by

A)the liquidity balances.
B)capital account deficits.
C)unilateral transfers.
D)balance of trade surpluses.

Question 37

International Reserve assets are comprised of gold,foreign exchange,and IMF special drawing rights.

Question 38

Credit entries on the Balance of Payments are the entries that would

A)mean a loss of foreign exchange.
B)bring foreign exchange into the country.
C)indicate a surplus exists.
D)exist at the bottom line after all accounts are totaled.

Question 39

Security purchases by citizens of the United States on foreigners markets is

A)a credit item in the current account.
B)a debit item in the capital account.
C)a credit item in the capital account.
D)a debit item in the current account.

Question 40

If domestic saving exceeds investment,there will be a current account surplus.

Question 41

The current account can be defined as exports plus imports.

Question 42

How are the current account and the financial account related?

Question 43

Explain how BOP disequilibrium is restored under
(a) flexible exchange rates.
(b) fixed exchange rates,after you define what a BOP disequilibrium means.

Question 44

The U.S.is the world's largest creditor.

Question 45

How are the following transactions entered into the U.S.balance of payments?
(a) The U.S.government sends $2,000 worth of food aid to Africa.
(b) A U.S.firm exports $10,000 worth of goods to the United Kingdom,payable in 3 months.
(c) A U.S.tourist in Amsterdam spends $200 for food and hotels.

Question 46

Answer the following questions briefly.
(a) Is it possible for each nation to have BOP surpluses? Explain.
(b) What is the "statistical anomaly" that imparts a bias to trade balances?
(c) Is it correct to argue that deficit countries are harmed while surplus countries benefit by international free trade?
(d) How is the balance of payments linked to national saving and investment?

Question 47

Define the official settlements balance. Is there any difference between the United States and other countries in terms of what this balance measures? How does this affect the ability of the countries to run current account deficits?

Question 48

Large current account deficits imply large financial account surpluses.