Question 1

Double-entry bookkeeping requires that the debit and credit entries for any transaction must balance.

Accepted Answer

This is the fundamental principle of double-entry bookkeeping. Every transaction must have equal debits and credits to ensure the accuracy and completeness of financial records.

Question 2

If the bank is selling Russian rubles (RUB) for $0.16, then the implied ruble price of the dollar is RUB 6.25.

Accepted Answer

The answer of If the bank is selling Russian rubles...

Question 3

Foreign aid, royalties earned abroad, and long-term capital flows are part of the current account.

Accepted Answer

The answer of Foreign aid, royalties earned abroad, and long-term...

Question 4

The exchange rates quoted in the Wall Street Journal apply to transactions of $1 million or less and remain fixed for a 24-hour time period.

Accepted Answer

The exchange rates quoted in the Wall Street Journal are indicative rates and are subject to change throughout the day based on market conditions and other factors. They are not fixed for a 24-hour time period and may not necessarily apply to transactions of $1 million or less.

Question 5

A country that experiences a large deficit in the merchandise trade account should always aim at eliminating this trade deficit by adopting strict foreign trade policies.

Accepted Answer

Eliminating a trade deficit through strict foreign trade policies can be difficult and potentially harmful to the economy. It may lead to higher prices for consumers and reduced demand for exports. A better approach may be to encourage domestic production and innovation, attract foreign investment, and negotiate fair trade agreements.

Question 6

A trade deficit experienced by a country during a year generally signals the poor health of the economy.

Accepted Answer

A trade deficit does not necessarily indicate poor economic health. It could be a result of increased imports due to strong consumer demand or investment in the country. Additionally, some economists argue that a trade deficit can stimulate economic growth by providing necessary financing from foreign investors.

Question 7

The balance of trade account reflects only transactions associated with international trade of goods.

Accepted Answer

The balance of trade account only includes transactions related to the exchange of goods between countries. It does not include services or other types of international financial transactions.

Question 8

The capital account is the sum of the merchandise, services, and unilateral transfers accounts.

Accepted Answer

The capital account records transactions involving the transfer of financial assets, such as the purchase or sale of real estate or stocks, between countries. It is not related to the merchandise, services, or unilateral transfers accounts.

Question 9

In the balance of payment accounting, transactions that bring in money are treated as debit and the transactions that take away money are treated as credits.

Accepted Answer

The statement is incorrect. Transactions that bring in money are treated as credits and transactions that take away money are treated as debits in balance of payment accounting.

Question 10

When economists talk about a "balance of payments" deficit, they refer to a condition in which total debits exceed total credits in the balance of payments account.

Accepted Answer

The answer of When economists talk about a "balance of...

Quiz 6: An Introduction to the Foreign Exchange Market and the Balance of Payments