Question 1

The balance on the reserves account (BRA),under the pure flexible exchange regime is:&#10;A)   $44 billion&#10;B)$44 billion&#10;C)$216 billion&#10;D)none of these

Accepted Answer

A

Question 2

Foreign direct investment (FDI)occurs:&#10;A)when an investor acquires a measure of control of a foreign business&#10;B)when an investor buys foreign bonds directly&#10;C)with sales and purchases of foreign stocks and bonds that do not involve a transfer of control&#10;D)when a company buys foreign government bonds directly

Accepted Answer

Foreign direct investment (FDI) involves an investor acquiring control of a foreign business. This may be accomplished through the purchase of a controlling stake in a foreign company, the establishment of a new foreign subsidiary, or the acquisition of existing foreign assets. Options B and D refer to investments in foreign bonds, while option C refers to the purchase of foreign stocks and bonds that do not involve control over the business. Only option A accurately defines FDI.

Question 3

Which of the following is true about Canada'a BCA in 2000-2005?&#10;A)Canada had positive BCA&#10;B)Canada had negative BCA&#10;C)Canada's BCA was increasing during that period&#10;D)Canada's BCA was decreasing during that period

Accepted Answer

The question does not provide any information that would suggest a negative BCA or a trend of increasing or decreasing BCA during the period of 2000-2005. Therefore, the best answer is A - Canada had positive BCA.

Question 4

PetroCanada exports oil to New York.This transaction will be recorded in the balance of payments as&#10;A)a credit in the current account&#10;B)a debit in the current account&#10;C)a credit in the capital account&#10;D)a debit in the capital account

Accepted Answer

Exports of goods are recorded as a credit in the current account of the balance of payments because they represent an inflow of funds to the country from foreign buyers.

Question 5

The reserve account of the Balance of Payments records:&#10;A)the stock of foreign exchange held by the government&#10;B)changes in foreign exchange reserves held by the government&#10;C)the stock of gold held by foreign governments&#10;D)changes in foreign exchange reserves held by foreign governments

Accepted Answer

The reserve account of the Balance of Payments records changes in foreign exchange reserves held by the government. It tracks the flow of currency in and out of a country's economy, including the purchase and sale of foreign currencies by the central bank or government. The stock of foreign exchange held by the government is recorded in the assets section of the Balance of Payments. The stock of gold held by foreign governments is not included in the reserve account of the Balance of Payments.

Question 6

Portfolio investment refers to:&#10;A)changes in Canadian holdings of noncontrolling equity in foreign companies&#10;B)changes in Canadian holdings of controlling equity in foreign companies&#10;C)changes in foreign holdings of controlling equity in Canadian companies&#10;D)changes in foreign holdings of controlling stock in Canadian companies

Accepted Answer

Portfolio investment refers to investments in noncontrolling equity in foreign companies, which is represented by option A. Choices B and D refer to foreign direct investment, while choice C refers to inward foreign direct investment in Canada.

Question 7

If a country has a flexible exchange rate system and a deficit on current account&#10;A)the balance of payments must be zero.&#10;B)The balance of payments must be positive.&#10;C)The balance on capital account must be negative.&#10;D)The balance on capital account must be positive.

Accepted Answer

If a country has a flexible exchange rate system and a deficit on current account, it means that the country is importing more goods and services than it is exporting. This would lead to an outflow of its currency, resulting in a depreciation of its exchange rate. This, in turn, makes exports cheaper and imports more expensive, which would eventually reduce the deficit on current account.

However, this depreciation of the exchange rate would also attract foreign investment and lead to an inflow of capital, which would increase the surplus on capital account. Therefore, the balance on capital account must be positive (or in surplus) to maintain the deficit on current account. Thus, option D is the correct choice.

Question 8

A Chinese state-owned company buys a Canadian saw mill.This transaction will be recorded in the balance of payments as&#10;A)a credit in the current account&#10;B)a debit in the current account&#10;C)a credit in the capital account&#10;D)a debit in the capital account

Accepted Answer

This transaction involves a foreign investment in domestic assets, which is recorded as a credit in the capital account of the balance of payments.

Question 9

If a country has a flexible exchange rate system and a deficit on capital account&#10;A)the balance of payments must be zero.&#10;B)The balance of payments must be positive.&#10;C)The balance on current account must be positive.&#10;D)The balance on current account must be negative.

Accepted Answer

The answer of If a country has a flexible exchange...

Question 10

Invisible trade refers to:&#10;A)services that avoid tax payments&#10;B)underground economy&#10;C)legal, consulting, and engineering services&#10;D)tourist expenditures, only

Accepted Answer

Invisible trade refers to the exchange of services and not tangible goods between countries. Legal, consulting, and engineering services are invisible items that are traded between countries.

Question 11

Nokia Inc,a Finnish company,hires a French consulting firm.This transaction will be recorded in France's balance of payments as&#10;A)a credit in the current account&#10;B)a debit in the current account&#10;C)a credit in the capital account&#10;D)a debit in the capital account

Accepted Answer

The answer of Nokia Inc,a Finnish company,hires a French consulting...

Question 12

Balance of payment&#10;A)records a country's commerce with one other country&#10;B)provides detailed information concerning the demand and supply of a country's currency&#10;C)cannot be used to evaluate the performance of a country in international economic competition&#10;D)may or may not balance

Accepted Answer

The answer of Balance of payment&#10;A)records a country's commerce with...

Question 13

Which of the following is true under a pure flexible exchange rate regime?&#10;A)Balance of current account + Balance of capital account > 0&#10;B)Balance of current account + Balance of capital account < 0&#10;C)Balance of current account + Balance of capital account = 0&#10;D)There is insufficient information to warrant any of the above answers

Accepted Answer

The answer of Which of the following is true under...

Question 14

BMW,a German car manufacturer,opens a new subsidiary in China.This transaction will be recorded in China's balance of payments as&#10;A)a credit in the current account&#10;B)a debit in the current account&#10;C)a credit in the capital account&#10;D)a debit in the capital account

Accepted Answer

The answer of BMW,a German car manufacturer,opens a new subsidiary...

Question 15

The balance on the reserves account (BRA),under the fixed exchange regime is:&#10;A)   $44 billion&#10;B)$44 billion&#10;C)$216 billion&#10;D)none of these

Accepted Answer

The answer of The balance on the reserves account (BRA),under...

Question 16

The Ontario Teachers' Pension Fund buys shares in DaimlerChrylser.This transaction will be recorded in the balance of payments as&#10;A)a credit in the current account&#10;B)a debit in the current account&#10;C)a credit in the capital account&#10;D)a debit in the capital account

Accepted Answer

The answer of The Ontario Teachers' Pension Fund buys shares...

Question 17

Nokia Inc,a Finnish company,hires a French consulting firm.This transaction will be recorded in Finland's balance of payments as&#10;A)a credit in the current account&#10;B)a debit in the current account&#10;C)a credit in the capital account&#10;D)a debit in the capital account

Accepted Answer

The answer of Nokia Inc,a Finnish company,hires a French consulting...

Question 18

A country's international transactions can be grouped into the following three main types:&#10;A)current account, medium term account, and long term account&#10;B)current account, long term account, and capital account&#10;C)current account, capital account, and reserve account&#10;D)capital account, reserve account, trade account

Accepted Answer

The answer of A country's international transactions can be grouped...

Question 19

Encana,a Canadian firm,buys equipment from Germany.This transaction will be recorded in the balance of payments as&#10;A)a credit in the current account&#10;B)a debit in the current account&#10;C)a credit in the capital account&#10;D)a debit in the capital account

Accepted Answer

The answer of Encana,a Canadian firm,buys equipment from Germany.This transaction...

Question 20

The &#34;J-curve effect&#34; shows:&#10;A)the initial deterioration and the eventual improvement of a country's trade balance following a currency depreciation&#10;B)the initial improvement and the eventual depreciation of a country's trade balance following a currency depreciation&#10;C)the trade balance's lack of responsiveness to the exchanges rate changes&#10;D)none of these

Accepted Answer

The answer of The &#34;J-curve effect&#34; shows:&#10;A)the initial deterioration and...

Question 21

Explain balance on current account.

Accepted Answer

The answer of Explain balance on current account....

Question 22

Why should the balance of payments always be zero for countries with flexible exchange rates?

Accepted Answer

The answer of Why should the balance of payments always...

Question 23

Can a country have a current account and a capital account surplus at the same time?

Accepted Answer

The answer of Can a country have a current account...

Question 24

Explain balance on capital account.

Accepted Answer

The answer of Explain balance on capital account....

Question 25

Explain the J-curve effect.

Accepted Answer

The answer of Explain the J-curve effect....

Deck 3: Balance of Payments