Question 1

The purchase of French wine by U.S.consumers will be accounted as:

Accepted Answer

The purchase of French wine by U.S. consumers will be recorded as a debit in the merchandise account, as it represents an import of goods from France.

Question 2

Which of the following statements is incorrect with respect to the balance of payments?

Accepted Answer

The balance of payments constitutes a record of transactions between residents of one country with residents of other countries, not just within one country.

Question 3

Which of the following transactions will be included in the financial account of the balance of payments of any country?

Accepted Answer

The financial account of the balance of payments records transactions that involve financial assets and liabilities, such as investments in stocks, bonds, real estate, and other financial instruments.

Question 4

A U.S.citizen's income from investment in foreign countries is _____ in the U.S.current account.

Accepted Answer

Income from investment in foreign countries is recorded in the U.S. current account as a credit because it represents an inflow of foreign earnings to the U.S. The current account includes all transactions of goods and services, income flows, and unilateral transfers between the U.S. and foreign countries. Income from investments is classified under the income flows section of the current account.

Question 5

The table given below reports the value of various international transactions in Germany for the year 2011.The negative sign denotes the outflow of euros from Germany. Table 6.1
 Refer to Table 6.1.Compute the capital account balance for Germany.

Accepted Answer

The answer of The table given below reports the value...

Question 6

The _____ account reflects the movement of goods and services into and out of the country.The _____ account reflects the flow of financial assets into and out of the country.

Accepted Answer

The current account records the movement of goods and services, while the financial account records the flow of financial assets such as investments and transactions between countries. Therefore, the choice C is the correct answer. The other options are incorrect because they either include an incorrect account or do not differentiate between the two accounts.

Question 7

The net balance on the balance of payments accounts:

Accepted Answer

The net balance on the balance of payments accounts is always zero because it records all economic transactions between residents of a country and the rest of the world, ensuring that all debits and credits balance out.

Question 8

A gift from the British prime minister to the American president would be classified as a _____ in the balance of payments account.

Accepted Answer

A gift from the British prime minister to the American president is a unilateral transfer as it involves a one-way transfer of assets without anything received in return.

Question 9

When economists talk about a balance of payments "deficit, " they refer to:

Accepted Answer

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

Question 10

Which of the following would be included in the financial account of the U.S.balance of payments?

Accepted Answer

The financial account of the balance of payments records transactions that involve financial assets and liabilities, such as investments. The purchase of stock in a U.S. corporation by a foreigner is a financial investment and thus included in the financial account.

Question 11

The table given below reports the value of various international transactions in Germany for the year 2011.The negative sign denotes the outflow of euros from Germany. Table 6.1
 Refer to Table 6.1.The statistical discrepancy in the balance of payments accounts for Germany in the year 2011 is:

Accepted Answer

The statistical discrepancy is calculated as the difference between the overall balance of payments and the sum of the current and capital accounts. In this case, the overall balance of payments is -€60, the current account balance is €230 and the capital account balance is -€640, giving a total of -€410. Therefore, the statistical discrepancy is the difference between -€410 and the reported overall balance of payments of -€40, which is -€370.

Question 12

Which of the following would be entered as a credit in the financial account of the United States?

Accepted Answer

When foreigners purchase U.S. Treasury bonds, it is considered a credit in the financial account because it represents an inflow of capital into the United States.

Question 13

The table given below reports the value of various international transactions in Germany for the year 2011.The negative sign denotes the outflow of euros from Germany. Table 6.1
 Refer to Table 6.1.Calculate the current account balance for Germany for the year 2011.

Accepted Answer

The current account balance is calculated as the sum of the balance of trade, net income from abroad, and net current transfers. 
Balance of trade = 840 - 650 - 200 - 270 = -280 
Net income from abroad = 1140 - 1000 = 140 
Net current transfers = -350 
Therefore, the current account balance = (-280) + 140 - 350 = -490. 
Since the question asks for the value with a negative sign denoting outflow, the answer is -(-490) = C) -€870.

Question 14

Which of the following statements about the U.S.balance of payments in 2008 is true?

Accepted Answer

In the third quarter of 2008, the U.S. merchandise account typically showed a deficit, not a surplus, due to higher imports than exports.

Question 15

The table given below reports the value of various international transactions in Germany for the year 2011.The negative sign denotes the outflow of euros from Germany. Table 6.1
 Refer to Table 6.1.Compute the merchandise trade balance of Germany in 2011.

Accepted Answer

The answer of The table given below reports the value...

Question 16

A U.S.tourist travels to Italy and spends $900 during the trip.How is this activity recorded in the U.S.current account?

Accepted Answer

The U.S. tourist spending money in Italy for goods or services would be recorded as a debit transaction for services, as it represents a payment for services received in a foreign country.

Question 17

Which of the following is included in a nation's current account?

Accepted Answer

Investment income receipts are included in a nation's current account, as they represent income earned by a country from its investments abroad, such as dividends, interest, and profits from foreign businesses operating within the country. Purchases of foreign assets (A) and foreign purchases of U.S. financial assets (C) would be included in the capital account, while borrowing from abroad (B) would be included in the financial account. Purchases of foreign real property (E) would also be included in the capital account.

Question 18

The statistical discrepancy account:

Accepted Answer

The statistical discrepancy account estimates transactions that were omitted from the official reporting process, thereby ensuring balance between debits and credits in the balance of payments. It is not related to accounting for services, gifts, or causing a negative net balance.

Question 19

Suppose an economics professor receives a $10, 000 royalty check from a foreign publishing company and deposits the amount in a local bank.This transaction would be recorded as:

Accepted Answer

The answer of Suppose an economics professor receives a $10,...

Question 20

The statistical discrepancy account is also referred to as:

Accepted Answer

The statistical discrepancy account is also known as "omissions and errors," which refers to inconsistencies in statistical data that cannot be explained by specific identifiable sources, such as sampling or survey errors.

Quiz 7: an Introduction to the Foreign Exchange Market and the Balance of Payments