Deck 10: Balance of Payments

Question 1

If a US firm exports $7,000 of goods which are to be paid for within six months,using a double-entry bookkeeping system,what entries should be made in the US balance of payments?

A)Goods export - credit of $7,000; Capital outflow - debit of $7,000
B)Accounts Receivable - debit of $7,000; Inventory - credit of $7,000
C)Goods export - debit of $7,000; Capital outflow - credit of $7,000
D)Accounts Receivable - credit of $7,000; Inventory - debit of $7,000

Answer 1

A

Question 2

If a US resident purchases a foreign stock for $750 and pays for it by increasing foreign bank balances in the US,what entries would be made in the US balance of payments?

A)Common stock - credit of $900; Cash - debit of $900
B)Capital outflow - credit of $900; Capital inflow - debit of $900
C)Common stock - debit of $900; Cash - credit of $900
D)Capital outflow - debit of $900; Capital inflow - credit of $900

Answer 2

D

Question 3

If a foreign investor purchases $800 of US treasury bills and pays by drawing down his bank balances in the US by an equal amount,what would the entries be in the US balance of payments?

A)Treasury stock - credit of $800; Cash - debit of $800
B)Capital outflow - credit of $800; Capital inflow - debit of $800
C)Treasury stock - debit of $800; Cash - credit of $800
D)Capital inflow - credit of $800; Capital outflow - debit of $800

Answer 3

D

Question 4

Which of the following is not true about a nation's balance of payment?

A)Balance of Payment information is important to Banks
B)Balance of Payment keeps record or all the transactions that took place between the resident of a country and the rest of the world
C)Balance of Payment is useful to individuals involved in international trade and finance
D)Balance of Payment information is not important for a business firm

Question 5

Which of the following is an example of a deficit in the balance of payments?

A)The excess of debits over credits in the current and financial accounts
B)The excess of credits over debits in the current account
C)The excess of credits over debits in the financial account
D)Both b & c

Question 6

A nation's balance of payments reflects

A)the summary of all trade related transactions that took place within a given period.
B)all the money that was exchanged between the country and all its trading partners within a given period.
C)the value of all the assets that was purchased by foreigners within a given period.
D)the summary of all the transactions that took place between the residents of a country and the rest of the world within a given period.

Question 7

____________ are balance of payments transactions involving the receipt of payments from foreigners.

A)Debit transactions
B)Credit transactions
C)Accommodating transactions
D)Autonomous transactions

Question 8

Which of the following is an example of a capital outflow for the US?

A)A domestic increase of assets held by foreign investors
B)A reduction in US foreign asset holdings
C)An increase in US foreign asset holdings
D)Unilateral transfers from foreigners

Question 9

Which of the following is an example of a capital outflow for the US?

A)A domestic increase of assets held by foreign investors
B)A reduction in US foreign asset holdings
C)Unilateral transfers from foreigners
D)A domestic decrease of assets held by foreign investors

Question 10

Which of the following is an example of a capital inflow for the US?

A)A domestic decrease of assets held by foreign investors
B)A reduction in US foreign asset holdings
C)An increase in US foreign asset holdings
D)Importation of goods and services

Question 11

_____________ are transactions in official reserve assets that are required to balance international transactions.

A)Automated transactions
B)Autonomous transactions
C)Accommodating transactions
D)Discrepancy Adjustment

Question 12

Which of the following does the international investment position consider?

A)The total amount of a nation's assets abroad at the end of the year
B)The distribution of a nation's assets abroad at the end of the year
C)The foreign assets in the nation at the end of the year
D)All of the above

Question 13

_____________ are international transactions that take place for business or profit motives and independently of balance-of-payments considerations.

A)Automated transactions
B)Autonomous transactions
C)Accommodating transactions
D)Below-the-line-transactions

Question 14

Which of the following is true about the balance of payments?

A)Although there are millions of transactions each year,it is necessary to keep a detailed record of them for accurate accounting purposes
B)The balance of payments aggregates all merchandise trade into a few major categories
C)The balance of payments does not include transactions in which the residents of foreign nations are not directly involved
D)Not only are the net balances of each type of international capital flow included in the balance of payments,but a detailed breakdown of these transactions is accounted for as well

Question 15

The balance of payments is the sum of which of the following?

A)Current account balance
B)Current account balance + financial account balance
C)Current account balance + financial account balance + statistical discrepancy
D)None of the above

Question 16

Which of the following is an example of a surplus in the balance of payments?

A)The excess of debits over credits in the current and financial accounts
B)The excess of credits over debits in the current account
C)The excess of credits over debits in the capital account
D)Both B & C

Question 17

Which of the following is an example of a capital inflow for the US?

A)A domestic increase of assets held by foreign investors
B)A domestic decrease of assets held by foreign investors
C)An increase in US foreign asset holdings
D)Importing of goods and services

Question 18

If a US resident were to visit Japan and spend $500 on food and shelter,what entries would be made into the US balance of payments?

A)Travel services - credit of $500; Capital inflow - debit of $500
B)Accounts Payable - debit of $500; Goods imports - credit of $500
C)Travel services - debit of $500; Capital inflow - credit of $500
D)Accounts Payable - credit of $500; Inventory - debit of $500

Question 19

If the US government gives a US bank balance of $900 to the government of Argentina as aid,what entries would be made in the US balance of payments?

A)Goodwill - credit of $900; Cash - debit of $900
B)Unilateral transfers made - debit of $900; Capital inflow - credit of $900
C)Goodwill - debit of $900; Cash - credit of $900
D)Unilateral transfers made - credit of $900; Capital inflow - debit of $900

Question 20

Which of the following is not included in the current account?

A)Currently produced goods and services
B)Income on foreign investments
C)Unilateral transfers
D)Direct Foreign Investment

Question 21

Which of the following is true in 2009?

A)US current account and financial account both had a deficit
B)US current account had a deficit but the financial account had a surplus
C)US financial account was in deficit while the current account had a surplus
D)Both the current account and financial account was independently balanced

Question 22

A balance of payments is a summary statement of all the transactions of the residents of a nation with the rest of the world during some period of time.

Question 23

Which of the following must be considered when examining a nation's balance of payments?

A)Too much attention is placed on the balance of goods and on short-term data
B)International transactions are independent so that an attempt to reduce the US trade deficit with one nation doesn't affect the surplus the US has with another.
C)Measuring the deficit in the balance of payments is strictly correct under a flexible exchange rate system and not under a fixed exchange rate system.
D)If we have a deficit in the balance of payments,under the flexible exchange rate that will not bring any pressure on the currency value.

Question 24

A nation's international investment position is also called its:

A)Balance of international capital flow
B)Balance of international indebtedness
C)International capital accumulation standing
D)Current account balance

Question 25

____________ is an example of a debit transaction in the balance of payments.

A)Exports of goods and services
B)Unilateral transfers from foreigners
C)Unilateral transfers to foreigners
D)Capital inflows

Question 26

Which of the following is classified as a credit in the US balance of payments?

A)US exports
B)US gifts to other countries
C)A flow of gold out of the US
D)Foreign loans made by US companies

Question 27

____________ is an example of a credit transaction in the balance of payments.

A)Import of goods and services
B)Unilateral transfers to a foreign country
C)Capital inflows
D)Capital outflow

Question 28

US military aid granted to foreign countries is entered in the:

A)Merchandise trade account
B)Capital account
C)Current account
D)Official settlements account

Question 29

During the fiscal year of 2009,what was the net balance in the US current account?

A)+ $481 billion
B)+ $805 billion
C)- $378 billion
D)- $3 billion

Question 30

During the fiscal year 2009,how much did the US export in dollars?

A)$1 - $2.5 trillion
B)$100 - $500 million
C)$500 million - $1 billion
D)$5 - $10 billion

Question 31

____________ are balance of payments transactions involving payments to foreigners.

A)Debit transactions
B)Credit transactions
C)Accommodating transactions
D)Autonomous transactions

Question 32

In a country's balance of payments,which of the following transactions are debits?

A)Domestic bank balances owned by foreigners are decreased
B)Foreign bank balances owned by domestic residents are decreased
C)Assets owned by domestic residents are sold to nonresidents
D)Securities are sold by domestic residents to nonresidents

Question 33

____________ indicates the international investment position of a country at a given point in time.

A)The balance of payments
B)The financial account of the balance of payments
C)The current account of the balance of payments
D)The balance of international indebtedness

Question 34

In which of the following is a statistical discrepancy likely to occur?

A)Sales and purchases of goods and services
B)Short term private capital flows
C)Unilateral transfers
D)Gifts made to foreigners and vice versa

Question 35

The sharp deterioration of the US trade balance on goods after the 1970s was due in large part to which of the following?

A)The sharp rise in the price of imported petroleum products during the 1970s
B)The high international value of the dollar in the 1980s
C)The more rapid growth of the United States than Europe and Japan during the 1990s
D)All of the above

Question 36

____________ is an example of a debit transaction in the balance of payments.

A)Exports of goods and services
B)Unilateral transfers to foreigners
C)Capital inflows
D)Receipt of a vase as a gift from a foreign country

Question 37

In the balance of payments,the statistical discrepancy is used to:

A)Ensure that the sum of all debits matches the sum of all credits
B)Ensure that trade imports equal trade exports
C)Obtain an accurate account of the trade deficit
D)Obtain an accurate account of the balance of payments deficit

Question 38

If the US government sells military hardware to Egypt,the transaction would be recorded on the US balance of payments as a:

A)Current account debit
B)Current account credit
C)Capital account debit
D)Capital account credit

Question 39

Credit transactions involve the receipt of payments from foreigners.

Question 40

_____________ is an example of a credit transaction in the balance of payments.

A)Imports of goods and services
B)Exports of goods and services
C)Unilateral transfers to foreigners
D)Capital outflows

Question 41

Financial reserve assets are excluded from the capital account because changes in reserves reflect government policy rather than market forces.

Question 42

Unilateral transfers are loans to be paid back in a single lump sum at a date specified by the lender.

Question 43

Briefly discuss the international investment position of the United States and how it has changed over the course of the past two decades.

Question 44

A statistical discrepancy is the entry made in a nation's balance of payments to make total credits equal to total debits,as required by double-entry bookkeeping.

Question 45

Why does the balance of good part of the total balance of payment always get prominence?

Question 46

The official reserve account is relatively simple to account for since it only measures the change in the US official reserve assets.

Question 47

Gifts are not accounted for in a nation's balance of payments because no currency changes hands.

Question 48

The capital account is the value of US assets abroad and foreign assets in the United States,other than official reserve assets.

Question 49

Debit transactions involve the receipt of payments from foreigners.

Question 50

The official settlements balance is the net credit or debit balance in the official reserve account.

Question 51

The earnings received from abroad for the services of US assets abroad are recorded in the capital account.

Question 52

What is the difference between a nation's balance of payment account and its international investment position?