Deck 4: The Balance of Payments

Question 1

In the case of double-entry accounting,a(n)______ is created whenever an asset is increased,and a(n)______ is created whenever an asset is decreased

A)acquisition; cost
B)credit; debit
C)debit; credit
D)cost; credit
E)debit; acquisition

Answer 1

C

Question 2

Alberta is writing a report on how assets such as stocks,bonds,loans,and purchases or sales of companies affect the Ecuadorean BOP. These are examples of what types of assets found on the BOP?

A)Flexible assets
B)Financial assets
C)Capital assets
D)Intangible assets
E)Credit assets

Answer 2

B

Question 3

_______ trade is the export and import of merchandise.

A)Goods
B)Services
C)Income
D)Future transfers
E)Current transfers

Answer 3

A

Question 4

Transactions involving borrowing,lending,and investing across borders are recorded on the:

A)Current account
B)Capital account
C)Financial account
D)Income account
E)Portfolio account

Question 5

A U.S.government worker is updating a portion of the U.S.balance of payments that deals with goods such as automobiles and textiles,as well as banking services and consulting services. These are all examples of what types of assets found on the BOP?

A)Fixed assets
B)Financial assets
C)Real assets
D)Tangible assets
E)Investment assets

Question 6

___________ refers specifically to the balance of exports and imports of goods trade only.

A)Goods ratio
B)GDP
C)Balance of power
D)Balance of trade
E)Balance of payments

Question 7

The measurement of all international economic transactions between the residents of a country and foreign residents is called the:

A)Balance of power
B)Balance of trade
C)Balance of payments
D)Current financial account
E)Capital trade account

Question 8

A U.S.retailer imports $1 million worth of goods from a Chinese tea company. A negative entry is made in the merchandise-import category of the current account for $1 million. At the same time,a positive entry of $1 million is made in the capital account for the transfer of funds to the Chinese company. This example illustrates what fundamental element of BOP accounting?

A)Identifying what is/is not an international economic activity
B)Understanding the flow of goods
C)Understanding the flow of services
D)Presenting tangible and intangible assets
E)Use of double-entry bookkeeping

Question 9

Which of the following transactions should NOT be included on the U.S.balance of payments?

A)U)S.imports of Honda automobiles
B)A U.S.based construction firm hired for a construction project in South America
C)An American tourist purchases souvenirs in Spain
D)The U.S.subsidiary of a British firm pays dividends to the parent firm
E)A German purchases a Canadian Treasury bill

Question 10

The AWC is an international bank that provides financial services to foreign importers and exporters. Such transactions would be included in which subcategory of the BOP current account?

A)Goods
B)Services
C)Income
D)Future transfers
E)Current transfers

Question 11

Merchandise trade includes three major components: manufactured goods,agriculture,and:

A)Fuels
B)Luxury goods
C)Services
D)Commodities
E)Gold

Question 12

The ___________ account records the results of transactions involving merchandise,services,and unilateral transfers between countries.

A)current
B)capital
C)financial
D)income
E)portfolio

Question 13

The entire BOP of a single country:

A)Is always in disequilibrium
B)Must balance
C)Must grow from year to year
D)Is never accurate
E)Balances goods but not services

Question 14

The BOP current account includes subcategories for all of the following EXCEPT:

A)Goods trade
B)Services trade
C)Income
D)Future transfers
E)Current transfers

Question 15

The two types of business transactions that dominate the balance of payments include:

A)Real assets and financial assets
B)Fixed assets and flexible assets
C)Labor assets and capital assets
D)Financial assets and technology assets
E)Tangible assets and intangible assets

Question 16

The __________ account consists of three components: direct investment,portfolio investment,and other asset investments.

A)income
B)capital
C)financial
D)services
E)goods trade

Question 17

The ________ category of the BOP current account is predominantly current income associated with investments that were made in previous periods.

A)goods trade
B)services trade
C)income
D)current transfers
E)investments

Question 18

Financial settlements associated with the change in ownership of real resources or financial items are associated with which current account subcategory?

A)Goods
B)Services
C)Income
D)Future transfers
E)Current transfers

Question 19

The ________ account is made up of transfers of financial assets and the acquisition and disposal of nonproduced/nonfinancial assets.

A)income
B)capital
C)financial
D)services
E)goods trade

Question 20

The BOP is similar to a:

A)Stock quote
B)Financial ratio
C)Balance sheet
D)Cash flow statement
E)Pareto analysis

Question 21

__________ occurs at the start of a financial crisis. It results in the loss of the financial account surplus,creating a severe deficit in the country's overall balance of payments.

A)Capital risk
B)Financial liquidity
C)Money laundering
D)Corporate socialism
E)Capital flight

Question 22

According to Obstfeld and Taylor,which era was characterized by continuously increasing capital openness as more and more countries adopted the gold standard and expanded international relations?

A)1776-1860
B)1860-1914
C)1914-1945
D)1945-1971
E)1971-2000

Question 23

The United States typically includes all of the following subcategories of its capital account balance EXCEPT:

A)Direct investment
B)Portfolio investment
C)Financial derivatives
D)Goods trade
E)Other investment

Question 24

With a(n)_____ exchange rate,the government of a country officially declares that its currency is convertible into a fixed amount of some other currency.

A)Standard
B)Floating
C)Set
D)Fixed
E)Official

Question 25

Rather than declaring that a currency is convertible into a fixed amount of some other currency,the exchange rate for the Canadian dollar instead fluctuates based on supply and demand. Canada uses what type of exchange rate?

A)Fixed
B)Floating
C)Fluctuating
D)Standard
E)Official

Question 26

________ refers to legal restraints on what a foreign investor may own or control in another country.

A)Profit
B)Sovereignty
C)Barriers to trade
D)Power
E)Control

Question 27

The ____________ account is the total currency and metallic reserves held by official monetary authorities within the country.

A)net errors and omissions
B)current
C)federal reserve
D)capital
E)official reserves

Question 28

According to Obstfeld and Taylor,which era was characterized by floating exchange rates,economic volatility,and rapidly expanding cross-border capital flows?

A)Bretton Woods
B)1860-1914
C)1914-1945
D)1945-1971
E)1971-2000

Question 29

Obstfeld and Taylor argued that due to two wars and a worldwide depression,the period of ________ was a period of global economic destruction.

A)Bretton Woods
B)1860-1914
C)1914-1945
D)1945-1971
E)1971-2000

Question 30

A U.S.firm has recently built a new textile factory in Malaysia. This falls under which component of the financial account?

A)Direct investment
B)Portfolio investment
C)Financial derivatives
D)Goods trade
E)Other investment

Question 31

As a result of the global financial crisis in 2008 and 2009,the U.S.government was often criticized for "bailing out" large financial institutions. Such bailouts are examples of:

A)Corporate governance
B)Corporate socialism
C)Financial negligence
D)Capitalism
E)Deregulation

Question 32

Which international firm collects balance of payments statistics for more than 160 countries around world?

A)WTO
B)World Bank
C)IMF
D)EU
E)NAFTA

Question 33

__________ is the net balance of capital that flows in and out of the United States not reaching the 10 percent ownership threshold.

A)Direct investment
B)Portfolio investment
C)Financial derivatives
D)Goods trade
E)Other investment

Question 34

The period between 1945 and 1971,also known as the __________ era,saw a great expansion of international trade in goods and services.

A)Cold War
B)market volatility
C)gold standard
D)Bretton Woods
E)Imperial

Question 35

Which account ensures that the BOP actually balances?

A)Net errors and omissions account
B)Current account
C)Quality control account
D)Capital account
E)Official reserves account

Question 36

In almost all cases,a country's current account and financial account:

A)Fluctuate at random
B)Are inverse of one another
C)Have a direct relationship
D)Are always growing simultaneously
E)Are always shrinking simultaneously

Question 37

Financial instruments that are linked to a specific instrument,indicator,or commodity are called:

A)Direct investments
B)Portfolio investments
C)Financial derivatives
D)Goods
E)Other investments

Question 38

____________ refers to how a firm is managed and operated.

A)Corporate governance
B)Corporate socialism
C)Organizational structure
D)Capitalism
E)Causal complexity

Question 39

Edita lives in a country that is experiencing rapidly expanding current account deficits. Which of the following is likely also happening simultaneously as a result of the inverse relationship between current and financial accounts?

A)Large amounts of capital are flowing into the country
B)Scarce amounts of capital are flowing into the country
C)The government establishes a floating exchange rate
D)The government establishes a fixed exchange rate
E)The country is going into debt

Question 40

The _________ category of the financial account consists of various short-term and long-term trade credits,cross-border loans,currency and bank deposits,and other accounts receivable and payable related to cross-border trade.

A)direct investment
B)portfolio investment
C)financial derivatives
D)goods trade
E)other investment

Question 41

The current account records the results of transactions involving merchandise,services,and unilateral transfers between countries.

Question 42

Under a fixed exchange rate,the government of a country officially declares that its currency is convertible into a fixed amount of some other currency.

Question 43

The capital account consists of three components: direct investment,portfolio investment,and other asset investment.

Question 44

The official reserves account makes sure the balance of payments actually balances.

Question 45

Matrix bookkeeping is the accounting methodology where each transaction gives rise to both a debit and a credit of the same currency amount.

Question 46

The income category of the current account is predominantly current income associated with investments that were made in previous periods.

Question 47

An American tourist watches while a German tourist purchases souvenirs at a shop in Spain.This transaction would be counted and captured in the U.S.balance of payments.

Question 48

While the supply and demand of a country's currency or trade may be imbalanced,the entire balance of payments must always balance.

Question 49

In recent years,U.S.manufacturing trade has grown,thanks in part to a weaker dollar,more rapid economic growth in Europe,and a substantial increase in agricultural exports.

Question 50

The World Bank is the international organization that collects balance of payments statistics for over 160 different countries around the world.

Question 51

In the case of false invoicing,capital is moved through the underinvoicing of _______ or the overinvoicing of ________.

A)manufactured goods; agricultural goods
B)services; goods
C)goods; services
D)exports; imports
E)imports; exports

Question 52

Portfolio investment is the net balance of capital that flows in and out of the United States,but does not reach the 10 percent ownership threshold of direct investment.

Question 53

When capital flows into the United States,it enters the U.S.balance of payments as a positive cash flow.

Question 54

The BOP is often misunderstood because many people believe it to be a cash flow statement rather than a balance sheet.

Question 55

Which of the following IS NOT a primary mechanism by which capital can be moved from one country to another?

A)Regular bank transfers
B)Transfer of currency
C)Bartering
D)Money laundering
E)False invoicing

Question 56

Joseph is a small-time crook who decides to smuggle money in his carry-on luggage during a flight from South Africa to Moscow. This is an example of what type of transfer of capital?

A)Regular bank transfers
B)Transfer of currency by bearer
C)Trading precious metals for gold
D)Money laundering
E)False invoicing

Question 57

Which of the following mechanisms for moving capital from one country to another are considered to be the easiest and the lowest cost?

A)Regular bank transfers
B)Transfer of currency
C)Trading precious metals for gold
D)Money laundering
E)False invoicing

Question 58

___________ refers to the cross-border purchase of assets that are then managed in a way that hides the movement of money and its ownership.

A)False invoicing
B)Libel
C)Fraud
D)Extortion
E)Money laundering

Question 59

Services trade is the oldest and most traditional form of international economic activity.

Question 60

All countries possess some amount of trade,most of which is merchandise.

Question 61

____________ is the cross-border purchase of assets that are managed in a way that hides the movement of money and its ownership

Question 62

The ___________ account makes sure the balance of payments actually balances

Question 63

________ is a statement of all transactions between one country and the rest of the world during a given period.

Question 64

Under a(n)____________ system,the government of a country possesses no responsibility to declare that its currency is convertible into a fixed amount of some other currency.

Question 65

The easiest and least costly method for moving capital from one country to another is through transfer of cash into collectibles or precious metals.

Question 66

The period of 1860 to 1914,called the Bretton Woods era,saw a great expansion of international trade in goods and services.

Question 67

The ________ account,which consists of goods trade,services trade,income,and transfers,includes all international economic transactions with income or payment flows occurring within the year.

Question 68

The period of 1971 to 2000 is characterized by floating exchange rates and economic volatility.

Question 69

Under a(n)____________ system,the government of a country officially declares that its currency is convertible into a fixed amount of some other currency.

Question 70

A country that is experiencing rapidly expanding current account deficits will simultaneously build financial account surpluses.

Question 71

__________ refers to the fact that in many countries,governments would not allow firms to fail,workers to lose jobs,or banks to close.

Question 72

The __________ is an account in the BOP statement that records the results of transactions involving merchandise,services,and unilateral transfers between countries.

Question 73

The __________ account of the BOP shows the change in the amount of funds immediately available to a country for making international payments and the borrowing and lending that has taken place between the monetary authorities of different countries.

Question 74

__________ refers to legal restraints on what a foreign investor may own or control in another country.

Question 75

Describe how the Capital and Financial Account measure international economic transactions of financial assets.

Question 76

Describe the fundamentals of balance of payments accounting.

Question 77

Corporate socialism refers to the fact that most companies in East Asia are often largely controlled by families or groups related to the governing party or the body of the country.

Question 78

The __________ is an account in the BOP statement that records transactions involving borrowing,lending,and investing across borders.

Question 79

Describe the current account and its four subcategories.

Question 80

__________ is the accounting methodology where each transaction gives rise to both a debit and a credit of the same currency amount.