Question 1

Which of the following is NOT an example of an exchange of financial assets?

Accepted Answer

The exchange of travel services is an exchange of real assets, not financial assets. The other options involve the exchange of financial assets.

Question 2

The balance of payments

Accepted Answer

The balance of payments records all international transactions for a country over a period of time. While IMF aid eligibility may be influenced by a country's balance of payments, it is not its primary purpose. Additionally, while the balance of payments looks at a country's economic transactions with other countries, it does not solely add up the value of assets and liabilities on a specific date.

Question 3

Which of the following is NOT a part of the Current Account of BOP?

Accepted Answer

Net portfolio investment is a part of the Capital Account in the Balance of Payments, not the Current Account. The Current Account includes net export/import of goods, net export/import of services, and income received or paid to foreigners. The Balance of Trade is a subcategory of the net export/import of goods.

Question 4

Because current and financial/capital account balances use double-entry book keeping it is unusual to find serious discrepancies in the debits and credits.

Accepted Answer

The answer of Because current and financial/capital account balances use...

Question 5

Anaconda Copper Inc. created a subsidiary in Chile last year to mine copper ore. The proportion of net income paid back to the parent company as a dividend would be recorded in the current account subcategory of ________.

Accepted Answer

The proportion of net income paid back to the parent company as a dividend would be recorded in the income trade subcategory of the current account, as it represents income earned from foreign investment.

Question 6

According to the authors, the following types of transactions dominate the balance of payments:

Accepted Answer

The answer of According to the authors, the following types...

Question 7

Balance of payment (BOP) data may be important for any of the following reasons:

Accepted Answer

A) BOP data can give an indication of a country's market potential in the short run as it shows whether the country is receiving more money from exports than it is spending on imports.

B) The BOP is an important indicator of a country's foreign exchange rate as it shows the supply and demand of a country's currency in international markets.

C) Changes in a country's BOP may signal a change in controls over payment of dividends and interest as it shows changes in a country's financial inflows and outflows.

Therefore, all of the above are important reasons why BOP data is crucial.

Question 8

The BOP must be in balance but the current account need not be.

Accepted Answer

The BOP (Balance of Payments) is a comprehensive statement that includes the current account, capital account, and financial account. The BOP must be in balance, meaning that the sum of all transactions (inflows and outflows) must be equal, but the current account is a sub-account of the BOP and does not necessarily need to be in balance on its own. However, excessive deficits in the current account can lead to imbalances in the other sub-accounts of the BOP, which can ultimately affect the overall balance.

Question 9

The travel services provided to international travelers by United Airlines would be recorded in the current account subcategory of ________.

Accepted Answer

The current account subcategory of services trade records the value of services provided or received by a country. Travel services, such as those provided by United Airlines, fall under this category. The income trade subcategory records earned income by residents of a country from foreign sources, the goods trade subcategory records the value of goods traded between countries, and the current transfers subcategory records transfers of money between countries that do not involve the provision of goods or services.

Question 10

If your company were to import and export textiles, the transactions would be recorded in the current account subcategory of ________.

Accepted Answer

Import and export of textiles falls under the category of physical goods, which are accounted for in the current account subcategory of goods trade. Services trade would include things like consulting or financial services, income trade would include things like salaries or dividends received from foreign investments, and current transfers would include things like foreign aid or remittances from individuals.

Question 11

Which of the following would NOT be considered a typical BOP transaction?

Accepted Answer

The answer of Which of the following would NOT be...

Question 12

The balance of payments is most like a(an) ________.

Accepted Answer

The balance of payments is a record of all transactions between a country and its trading partners, including imports and exports of goods and services, financial transactions, and transfers of capital. Similarly, a cash flow statement shows the flow of cash in and out of a business, including operating activities, investing activities, and financing activities. Both the balance of payments and cash flow statement provide insight into the financial health of an entity.

Question 13

The balance of payments as applied to a course in international finance may be defined as

Accepted Answer

The balance of payments is a record of all economic transactions between the residents of a country and foreign residents, including trade in goods, services, and financial assets. It is a comprehensive measure of a country's international economic activity and helps to indicate whether a country is a net borrower or lender to the rest of the world. Choices A, B, and D do not fully capture the definition and purpose of the balance of payments.

Question 14

The authors identify a tip for understanding BOP accounting. They recommend that you "follow the cash flow."

Accepted Answer

Following the cash flow can help in understanding BOP accounting as it shows the inflows and outflows of foreign currency and helps in identifying trends and patterns.

Question 15

Which of the following is NOT an item to be considered in BOP calculations?

Accepted Answer

The answer of Which of the following is NOT an...

Question 16

Which of the following is NOT part of the balance of payments account?

Accepted Answer

All of the options A, B and C are part of the balance of payments account. Therefore, option D is incorrect.

Question 17

Which of the following is NOT part of the Financial Account of the BOP?

Accepted Answer

Net import/export of services is part of the Current Account, not the Financial Account, of the BOP. The Financial Account includes net foreign direct investment, net portfolio investment, and other financial items such as currency and bank deposits.

Question 18

A country experiencing a serious BOP ________ is more likely to ________ exports than otherwise.

Accepted Answer

The answer of A country experiencing a serious BOP ________...

Question 19

The ________ includes all international economic transactions with income or payment flows occurring within the year.

Accepted Answer

The current account records all international transactions involving the trade in goods and services, primary and secondary income (such as investment income and remittances), and transfers. It only includes income or payment flows that occur during the year. The capital account records capital transfers and the acquisition and disposal of non-produced, non-financial assets. The financial account records international transactions involving financial assets and liabilities. The IMF account is not a recognized category of international accounts.

Question 20

Expenditures by U.S. tourists in foreign countries for foreign goods or services are factored into BOP calculations.

Accepted Answer

Expenditures by U.S. tourists in foreign countries for foreign goods or services are considered imports and are included in the current account of the balance of payments (BOP) calculations.

Quiz 4: The Balance of Payments