Question 1

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

To find the implied ruble price of the dollar, take the reciprocal of the dollar price of the ruble: 1 / 0.16 = 6.25 RUB/USD.

Question 2

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

Accepted Answer

A trade deficit may not necessarily indicate the poor health of an economy. It could be due to various factors such as strong domestic demand for goods and services, a competitive exchange rate, or the pursuit of a deliberate growth strategy by the government. Trade deficits can also be offset by other economic indicators such as high productivity, low unemployment rates, or a thriving service sector.

Question 3

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

Accepted Answer

The balance of trade account only reflects transactions associated with international trade of goods, such as imports and exports. It does not include services, investment income, or transfer payments.

Question 4

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...

Question 5

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

Accepted Answer

Foreign aid, royalties earned abroad, and long-term capital flows are part of the capital and financial account, not the current account. The current account includes trade in goods and services, primary income, and secondary income.

Question 6

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

Accepted Answer

Double-entry bookkeeping is based on the principle that every financial transaction has equal and opposite effects in at least two different accounts. In other words, every debit entry must have a corresponding credit entry, and the sum of debits must equal the sum of credits. This ensures accuracy and helps to prevent errors and fraud.

Question 7

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

Accepted Answer

The capital account represents capital transfers and acquisition/disposition of non-produced, non-financial assets, such as land, natural resources, or works of art. It is separate from the current account, which includes the merchandise, services, and unilateral transfers accounts.

Question 8

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

While adopting strict foreign trade policies may help in reducing the trade deficit, it may also lead to negative consequences such as retaliation from trading partners, reduced access to foreign markets, and increased prices for domestic consumers. There are multiple factors that need to be considered when addressing a trade deficit, including exchange rate policies, domestic production capabilities, and macroeconomic policies. Simply adopting strict foreign trade policies is not always the most effective or feasible solution.

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 the opposite of the correct definition. Transactions that bring in money are treated as credits and transactions that take away money are treated as debits.

Question 10

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.

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