Deck 13: Balance of Payments

Question 1

When a U.S.firm imports goods to be paid in three months the U.S.credits:

A) the current account
B) secondary income
C) the financial account
D) official reserve assets

Answer 1

C

Question 2

Which of the following is a debit?

A) The export of goods
B) The export of services
C) Transfer payments given to foreigners
D) Capital inflows

Answer 2

C

Question 3

Which of the following is false?

A) A credit transaction leads to a payment from foreigners
B) A debit transaction leads to a payment to foreigners
C) A credit transaction is entered with a negative sign
D) Double-entry bookkeeping refers to each transaction entered twice.

Answer 3

C

Question 4

The international investment position of a nation measures

A) the current account minus the financial account
B) the current account plus the financial account
C) the total assets owned abroad minus the domestic assets owned by foreigners
D) the total assets owned abroad plus the domestic assets owned by foreigners

Question 5

The receipt of an interest payment on a loan made by a U.S.commercial bank to a foreign resident is entered in the U.S.balance of payments as a:

A) credit in the financial account
B) credit in the current account
C) credit in official reserves
D) debit in secondary income

Question 6

Which is not an official reserve asset of the U.S.?

A) U.S. holdings of Special Drawing Rights
B) The U.S. reserve position in the International Monetary Fund
C) Foreign official holdings of U.S. dollars
D) Official holdings of foreign currencies by U.S. monetary authorities

Question 7

Over the last fifty years the current account balance of the United States has

A) been deteriorating
B) been improving
C) remained roughly the same
D) always been in balance

Question 8

From the U.S.point of view,drawing on (reducing)foreign bank balances in a New York bank represents a:

A) capital inflow
B) capital outflow
C) outflow of official reserves
D) debit in the current account

Question 9

When a U.S.firm imports a good from England a pays for it by drawing on its pound sterling balances in a London Bank,the U.S.debits its current account and credits its:

A) official reserve account
B) secondary income account
C) services in its current account
D) financial account

Question 10

Which of the following is NOT an explanation for the growth of the trade deficit in the United States over the last thirty years

A) the rising price of oil in the 1970s
B) the rising value of the dollar in the 1980s
C) the higher growth rate of the U.S. in the 1990s
D) The lower levels of protectionist policies in the 1990s

Question 11

Accommodating items are:

A) transactions in official reserve assets
B) the items below the line
C) needed to balance international transactions
D) all of the above

Question 12

The largest trading partner of the United States is

A) Mexico
B) China
C) Japan
D) Canada

Question 13

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

A) a debit in the U.S. financial account
B) a credit in the U.S. financial account
C) a credit in the U.S. current account
D) a debit in the U.S. current account

Question 14

In the 1960s the international investment position of the United States was ______ and today the international investment position of the United States is

A) positive; positive
B) negative; negative
C) positive; negative
D) negative; positive

Question 15

When a U.S.resident (1)purchases foreign treasury bills and pays by (2)drawing down his bank balances abroad,the U.S.:

A) debits short-term financial and credits official reserves
B) debits financial account for (1) and credits financial account for (2)
C) debits official reserves and credits financial account
D) credits short-term capital and debits official reserves

Question 16

When the U.S.ships food aid to a developing nation,the U.S.debits:

A) secondary income
B) services
C) financial account
D) official reserves

Question 17

Capital inflows:

A) refer to an increase in foreign assets in the nation
B) refer to a reduction in the nation's assets abroad
C) lead to a payment from foreigners
D) all of the above

Question 18

Which of the following is false?

A) a net debit balance in the current and capital accounts measures the surplus in the nation's balance of payments
B) a balance of payments deficit must be settled by a net credit in the official reserve account
C) a deficit in the balance of payments can be measured by the excess of credits over debits in the official reserve account
D) a net debit balance in the official reserve account refers to a surplus

Question 19

The financial account of the U.S.includes:

A) the change in U.S. assets abroad and foreign assets in the U.S.
B) the change in U.S. assets abroad and foreign assets in the U.S., other than official reserve assets
C) all financial assets
D) all but current account transactions

Question 20

When the resident of a foreign nation (1)sells a U.S.stock and (2)deposits the proceeds in a U.S.bank,the U.S.:

A) credits financial for (1) and debits financial for (2)
B) credits the current account and debits financial
C) debits financial and credits official reserves
D) debits financial for (1) and credits financial for (2)

Question 21

What is the international investment position and how has it changed for the United States over the last fifty years.

Question 22

For the following set of international transactions with the United States,indicate in what specific category and account in the United States balance of payments each transaction would be included and whether it is a credit or debit.
Kodak exchanges € 50,000 received from export sales for dollars at the Federal Reserve bank of New York.

Question 23

For the following set of international transactions with the United States,indicate in what specific category and account in the United States balance of payments each transaction would be included and whether it is a credit or debit.
A U.S.citizen receives dividends on German stock,and puts the funds into a German bank account.

Question 24

Carefully define the balance of payments.

Question 25

The U.S.government gives $1,000,000 to Somalia.In the U.S.balance of payments,the gift of funds is recorded as a ______ to the ________ account.and as a ______ to the ________ account.

A) debit, current; there is no offsetting transaction because it is a gift.
B) debit, financial; credit, current.
C) credit, financial; debit, current.
D) debit, current; credit, financial.

Question 26

For the following set of international transactions with the United States,indicate in what specific category and account in the United States balance of payments each transaction would be included and whether it is a credit or debit.
Kodak,a U.S.company,sells photographic film in Europe and receives 50,000 euros in exchange.

Question 27

(a)If,for every debit or credit in the balance of payments,an offsetting credit or debit,respectively,of an equal amount is entered,how can a nation have a deficit or a surplus in the balance of payments?
(b)How is a deficit of a surplus in the balance of payments measured?
(c)Why are the concepts and measurement of deficit or surplus not appropriate under a flexible exchange rate system?
(d)What is the difference between a disequilibrium and a deficit in the balance of payments?

Question 28

A French investor sells $200,000 worth of stock in a U.S.company and puts the proceeds into a bank in the United States.In the U.S.balance of payments,the sale of stock is recorded as a ______ to the ________ account; the bank deposit is recorded as a a ______ to the ________ account.

A) credit, financial; debit, financial.
B) debit, financial; credit, financial.
C) credit, financial; debit, current.
D) debit, financial; debit, current.

Question 29

What is meant by autonomous transactions?

Question 30

What is the difference between a credit transaction and a debit transaction in the balance of payments?