Deck 16: Payments Among Nations

Question 1

Every international exchange of value is entered into the balance-of-payments accounts _____ time(s).

A)one
B)two
C)three
D)four

Answer 1

B

Question 2

Which of the following is considered a capital inflow?

A)A sale of U.S.financial assets to a foreign buyer
B)A loan from a U.S.bank to a foreign borrower
C)A purchase of foreign financial assets by a U.S.buyer
D)A U.S.citizen's repayment of a loan from a foreign bank

Answer 2

A

Question 3

In a country's balance of payments, which of the following items will be recorded as a debit entry?

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

Answer 3

A

Question 4

The net value of flows of financial assets and similar claims (excluding official international reserve asset flows) is called the:

A)financial account balance.
B)current account balance.
C)trade balance.
D)official reserve balance.

Question 5

Which of the following would tend to contribute to a U.S. current account surplus?

A)The United States makes a unilateral tariff reduction on imported goods.
B)The United States cuts back on American military personnel stationed in Japan.
C)U.S.tourists travel in large numbers to Asia.
D)Russian vodka becomes increasingly popular in the United States.

Question 6

When a U.S. resident increases her holdings of a foreign financial asset, this item is recorded as a:

A)credit entry in the U.S.current account.
B)debit entry in the U.S.current account.
C)credit entry in the U.S.capital account.
D)debit entry in the U.S.capital account.

Question 7

The role of international _____ is to direct one nation's savings into another nation's investments.

A)merchandise trade flows
B)services flows
C)unilateral transfers
D)capital flows

Question 8

An increase in a nation's financial liabilities to foreign residents is a:

A)reserve inflow.
B)reserve outflow.
C)capital imports.
D)capital exports.

Question 9

_____ are money-like assets that are held by governments and that are recognized by governments as fully acceptable for payments between them.

A)Official international reserve assets
B)Unofficial international assets
C)Official domestic assets
D)Unofficial reserve assets

Question 10

Which of the following capital transaction items is entered as a debit in the U.S. balance of payments?

A)A U.S.resident transfers $100 from his account at Credit Suisse in Basel (Switzerland) to his account at a San Francisco branch of Wells Fargo Bank.
B)A French resident transfers $100 from his account at Wells Fargo Bank in San Francisco to his Credit Suisse account in Basel.
C)A U.S.resident sells his IBM stock to a French resident.
D)A U.S.resident sells his Credit Suisse stock to a French resident.

Question 11

The net value of flows of goods, services, income, and unilateral transfers is described as the:

A)capital account balance.
B)current account balance.
C)trade balance.
D)official reserve balance.

Question 12

A credit item in the balance of payments is:

A)an item for which the country must be paid.
B)any loan given out by the country.
C)any imported item.
D)an item that creates a monetary claim owed to a foreigner.

Question 13

The financial account in the U.S. balance of payments includes:

A)everything that is included in the current account.
B)payments of pensions to U.S.citizens who now live in foreign countries.
C)profits that Nissan of America sends back to Japan.
D)new U.S.investments in foreign countries.

Question 14

In September 2005, exports of goods from the U.S. decreased $3.3 billion to $73.4 billion, and imports of goods increased $3.8 billion to $144.5 billion. This increased the deficit in:

A)the balance of payments.
B)the financial account.
C)the current account.
D)unilateral transfers.

Question 15

A debit item in the balance of payments is:

A)any foreign aid received by the country.
B)an item for which the country must pay.
C)any exported item.
D)an item that creates a monetary claim on a foreigner.

Question 16

A deficit in the current account:

A)is accompanied by an equal amount of surplus in the financial account or in official international reserves.
B)tends to cause a deficit in the financial account.
C)does not affect the financial account or official international reserves.
D)is the result of increasing exports and decreasing imports.

Question 17

In a nation's balance of payments, which one of the following items is always recorded as a positive entry?

A)Changes in foreign currency reserves
B)Imports of goods and services
C)Military foreign aid supplied to allied nations
D)Purchases by foreign travelers visiting the country

Question 18

When a foreign resident increases her holdings of a U.S. financial asset, the :

A)current account of the U.S.balance of payments will be credited.
B)current account of the U.S.balance of payments will be debited.
C)financial account of the U.S.balance of payments will be credited.
D)financial account of the U.S.balance of payments will be debited.

Question 19

A country's balance of payments records:

A)the prices that a country pays for its imports and the prices that the country receives for its imports.
B)the flows of value between that country's residents and residents of the rest of the world during a period of time.
C)capital gains and losses on a country's international assets.
D)the value of a country's holdings of foreign assets, minus the value of foreign holdings of the country's assets.

Question 20

The sum of all of the debit items in the balance of payments:

A)equals the overall balance.
B)equals the sum of all credit items.
C)equals 'compensating' transactions.
D)equals the errors and omissions.

Question 21

If the overall balance in the balance of payments account is in _____, there can be an accumulation of official reserve assets by the country or a decrease in foreign official reserve holdings of the country's assets.

A)surplus
B)deficit
C)equilibrium
D)remission

Question 22

If the balance of payments accounts of a country shows a current account deficit, it means that:

A)it is acting as a net lender to the rest of the world.
B)its foreign assets are growing slower than its foreign liabilities.
C)its foreign assets are growing faster than its foreign liabilities.
D)its exports are higher than its imports.

Question 23

The current account balance does NOT equal:

A)the difference between domestic product and domestic expenditure.
B)the difference between national saving and domestic investment.
C)net foreign investment.
D)the difference between government saving and government investment.

Question 24

A statement of the stocks of a country's foreign assets and foreign liabilities at a point in time represents the country's:

A)government budget surplus or deficit
B)balance of payments
C)financial account balance
D)international investment position.

Question 25

Official reserve assets are:

A)the gold holdings in the nation's central bank.
B)money like assets that are held by governments and that are recognized by governments as fully acceptable for payments between them.
C)government T-bills and T-bonds.
D)government holdings of SDR's.

Question 26

A nation is called a lender if:

A)its financial account is in deficit during a time period.
B)its current account is in surplus during a time period.
C)its current account is in deficit during a time period.
D)its net stock of foreign assets is positive.

Question 27

A country that is saving more than it is investing domestically:

A)has a current account surplus.
B)has a financial account deficit.
C)has a trade balance.
D)has a trade disequilibrium.

Question 28

A deficit in the overall balance of payments of a nation generally is an indication that:

A)the country's monetary authority is selling foreign currency.
B)the country's monetary authority is buying foreign currency.
C)the country's monetary authority is buying domestic government bonds.
D)the country's monetary authority is selling domestic currency.

Question 29

The international investment position of a country shows:

A)its stocks of international assets during a time period.
B)its stocks of international liabilities during a time period.
C)its stocks of international assets and liabilities at a point in time.
D)whether its current account is in deficit or surplus at a point in time.

Question 30

A nation is called a creditor if:

A)it provided financial assets to other countries.
B)its net stock of foreign assets is positive.
C)its current account is in surplus during a time period.
D)its current account is in deficit during a time period.

Question 31

During the 20^th century and into the 21^st, the U.S. net international investment position has:

A)been consistently positive.
B)been consistently negative.
C)gone from negative to positive and back to negative.
D)gone from positive to negative and back to positive.

Question 32

Which of the following constitutes the largest component of the world's international reserve assets?

A)Gold
B)Special drawing rights
C)IMF reserve positions
D)Foreign currencies

Question 33

Which of the following transactions is recorded in the financial account?

A)Ford Motor Company of the United States provides part of the financing for a new automobile factory in China.
B)A Chinese businessman imports Ford automobiles from the United States.
C)A U.S.tourist spends money on a trip to China.
D)The New York Yankees are paid $10 million by the Chinese to play an exhibition game in Beijing, China.

Question 34

The _____ measures the sum of the current account balance plus the nonofficial financial account balance.

A)official fiscal balance
B)nonofficial capital balance
C)official settlements balance
D)unofficial settlements balance

Question 35

A country experiencing a current account surplus:

A)needs to borrow internationally.
B)is able to lend internationally.
C)must also have had a surplus in its overall payments balance.
D)spends more than it earns on its merchandise and service trade, international income payments and receipts and international transfers.

Question 36

The difference between a country's purchases of foreign assets minus foreign purchases of the country's assets during a period of time is:

A)net official reserves.
B)net domestic investment.
C)net foreign investment.
D)net foreign surplus.

Question 37

The current account balance of the balance of payments account equals:

A)the sum of national savings and domestic capital formation.
B)net foreign investment.
C)the domestic production of goods and services.
D)net credits minus debits involving changes in nonofficial foreign financial assets and liabilities.

Question 38

If a British businessman sells U.S. government securities to a U.S. buyer, how will this item be entered in the balance of payments?

A)It will appear in the trade account as an import.
B)It will appear in the trade account as an export.
C)It will appear in the financial account as an increase in foreign assets held by U.S.residents.
D)It will appear in the financial account as a decrease in the U.S.assets held by foreigners.

Question 39

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 the value of imports equals the value of exports.
C)show how a balance-of-payments deficit is funded.
D)obtain an accurate account of a balance-of-payments surplus.

Question 40

A nation is considered to be a(n) _____ in the international market, if its current account is in deficit.

A)importer
B)exporter
C)borrower
D)lender

Question 41

A country's nonofficial financial account balance equals its net foreign investment.

Question 42

The official settlements balance is the sum of the capital account balance and the public current account balance.

Question 43

Explain the three different viewpoints (meanings) of the current account balance. Discuss the macroeconomic interpretations of a current account deficit.

Question 44

A country has a current account deficit if it is saving more than it is investing domestically.

Question 45

A nation's international investment position shows its stock of international assets and liabilities at a point in time.

Question 46

The net flow of financial assets and similar claims is the private current account balance.

Question 47

When countries have severe balance of payments difficulties caused by unsustainable current account deficits, they can approach the International Monetary Fund (IMF) for assistance. In providing financial assistance, the IMF generally insists that the country implement a series of policy changes designed to reduce the deficit. These programs are controversial as they tend to focus on demand reduction. Explain why demand reduction would solve a current account deficit problem. Would a program designed to increase the nation's GDP growth rate be a method of reducing a current account deficit? Why or why not?

Question 48

In 2013, U.S. households, businesses, and government were buying more goods and services than they were producing.

Question 49

At present, the majority of a nation's official reserve transactions are done by using foreign exchange assets instead of gold.

Question 50

The current account balance is equal to the difference between domestic product and national expenditure.

Question 51

The net value of the flow of goods, services, income, and gifts is the current account balance.

Question 52

Every international transaction recorded in the balance of payments has both a credit item and a debit item. In the case of a U.S. foreign aid, a debit in the balance of payments, what is the offsetting credit? Explain.

Question 53

A foreign resident increasing her holdings of a U.S. financial asset will be recorded as a debit item in the financial account of the U.S. balance of payments.

Question 54

A credit item is an item for which a country must pay.

Question 55

We often hear that trade deficits are bad for a country. Do you agree or disagree with this viewpoint? Explain carefully.

Question 56

A nation is a borrower if its current account is in deficit at a point in time.

Question 57

You are provided with the following information about a country's international transactions during a given year (in millions): $\begin{array}{ll}\text { Serv ice exports } & \$ 346 \\\text { Service imports } & \$ 354 \\\text { Merchandise exports } & \$ 480 \\\text { Merchandise imports } & \$ 348 \\\text { Income flows, net } & \$ 153 \\\text { Gifts to foreigners } & \$ 142 \\\text { Increase in the country's holding of foreign assets, net } & \$ 352\\\text { (excluding official reserves assets) }\\\text { Increase in foreign holdings of the country's assets, net }&\$252\\\text { (excluding official reserves assets) }\\\text { Statistical discrepancy, net credit }&\$154\end{array}$ Calculate the official settlements balance and the current account balance.
Is the country increasing or decreasing its net holdings of official reserve assets? Why?

Question 58

Capital inflows are debits and capital outflows are credits.

Question 59

Which of the following transactions could contribute to a British current account surplus? Discuss.
a.A French firm sells defense equipment to the British government for 250 million pounds in bank deposits
b.Great Britain makes a gift of $500 million to the Iraqi government in the form of equipment to aid in reconstruction.

Question 60

Gold is a major reserve asset that is currently being used in official reserve transactions.