Deck 3: Balance of Payments

Question 1

Foreign direct investment (FDI)occurs:

A) when an investor acquires a measure of control of a foreign business
B) when an investor buys foreign bonds directly
C) with sales and purchases of foreign stocks and bonds that do not involve a transfer of control
D) when a company buys foreign government bonds directly

Answer 1

A

Question 2

A Chinese state-owned company buys a Canadian saw mill.This transaction will be recorded in the balance of payments as

A) a credit in the current account
B) a debit in the current account
C) a credit in the capital account
D) a debit in the capital account

Answer 2

C

Question 3

A country's international transactions can be grouped into the following three main types:

A) Current Account, Medium term Account, and Long term Account
B) Current Account, Long term Account, and Capital account
C) Current Account, Capital Account, and Reserve Account
D) Capital Account, Reserve Account, Trade Account

Answer 3

C

Question 4

If BCA = BKA = $100 mn,then it must be true that

A) BRA = 0
B) BRA > 0
C) BRA < 0
D) BCA = BRA

Question 5

Balance of payment

A) records a country's commerce with one other country
B) provides detailed information concerning the demand and supply of a country's currency
C) cannot be used to evaluate the performance of a country in international economic competition
D) may or may not balance

Question 6

Invisible trade refers to:

A) services that avoid tax payments
B) underground economy
C) legal, consulting, and engineering services
D) tourist expenditures, only

Question 7

The reserve account of the Balance of Payments records:

A) the stock of foreign exchange held by the public
B) changes in foreign exchange reserves held by the government
C) the stock of gold held by foreign governments
D) changes in foreign exchange reserves held by foreign governments

Question 8

PetroCanada exports oil to New York.This transaction will be recorded in the balance of payments as

A) a credit in the current account
B) a debit in the current account
C) a credit in the capital account
D) a debit in the capital account

Question 9

The balance on the reserves account (BRA),under the pure flexible exchange regime is:

A) -$44 billion
B) $44 billion
C) $216 billion
D) BRA will not be considered.

Question 10

If a country has a flexible exchange rate system and a deficit on current account

A) the balance of payments must be negative.
B) The balance of payments must be positive.
C) The balance on capital account must be negative.
D) The balance on capital account must be positive.

Question 11

Which of the following is true under a pure flexible exchange rate regime?

A) Balance of current account - Balance of capital account > 0
B) Balance of current account + Balance of capital account < 0
C) Balance of current account + Balance of capital account = 0
D) Balance of current account - Balance of capital account = 0x

Question 12

Which of the following is true about Canada's BCA in 2000-2005?

A) Canada had positive BCA
B) Canada had negative BCA
C) Canada's BCA was increasing during that period
D) Canada's BCA was decreasing during that period

Question 13

The balance on the reserves account (BRA),under the fixed exchange regime is:

A) -$44 billion
B) $44 billion
C) $216 billion
D) $0 billion

Question 14

The "J-curve effect" shows:

A) the initial deterioration and the eventual improvement of a country's trade balance following a currency depreciation
B) the initial improvement and the eventual depreciation of a country's trade balance following a currency depreciation
C) the trade balance's lack of responsiveness to the interest rate changes
D) short-term price elasticity of exports and imports to the change in the economic growth

Question 15

The Ontario Teachers' Pension Fund buys shares in DaimlerChrysler.This transaction will be recorded in the balance of payments as

A) a credit in the current account
B) a debit in the current account
C) a credit in the capital account
D) a debit in the capital account

Question 16

Which of the following must be true under the flexible exchange rate regime:

A) BRA = BKA
B) Export = Import
C) A Current Account deficit (surplus) must be matched by a Capital Account deficit (surplus).
D) A Current Account surplus (deficit) must be matched by a Capital Account deficit (surplus).

Question 17

FDI is a part of

A) BCA
B) BKA
C) BRA
D) IMF

Question 18

If a country has a flexible exchange rate system and a deficit on capital account

A) the balance of payments must be negative.
B) The balance of payments must be positive.
C) The balance on current account must be positive.
D) The balance on current account must be negative.

Question 19

Portfolio investment refers to:

A) changes in Canadian holdings of noncontrolling equity in foreign companies
B) changes in Canadian holdings of controlling equity in foreign companies
C) changes in foreign holdings of controlling equity in Canadian companies
D) changes in foreign holdings of controlling stock in Canadian companies

Question 20

Encana,a Canadian firm,buys equipment from Germany.This transaction will be recorded in the balance of payments as

A) a credit in the current account
B) a debit in the current account
C) a credit in the capital account
D) a debit in the capital account

Question 21

Explain balance on capital account.

Question 22

Nokia Inc,a Finnish company,hires a French consulting firm.This transaction will be recorded in Finland's balance of payments as

A) a credit in the current account
B) a debit in the current account
C) a credit in the capital account
D) a debit in the capital account

Question 23

Why should the balance of payments always be zero for countries with flexible exchange rates?

Question 24

Explain the J-curve effect.

Question 25

Can a country have a current account and a capital account surplus at the same time?

Question 26

BMW,a German car manufacturer,opens a new subsidiary in China.This transaction will be recorded in China's balance of payments as

A) a credit in the current account
B) a debit in the current account
C) a credit in the capital account
D) a debit in the capital account

Question 27

Explain balance on current account.

Question 28

Nokia Inc,a Finnish company,hires a French consulting firm.This transaction will be recorded in France's balance of payments as

A) a credit in the current account
B) a debit in the current account
C) a credit in the capital account
D) a debit in the capital account