Question 1

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:
A) a $10,000 credit entry in the domestic services account.
B) a $5,000 debit entry in the domestic capital account.
C) a $20,000 debit entry in the domestic capital account.
D) a $10,000 credit entry in the domestic capital account.
E) a $10,000 debit entry in the domestic services account.

Accepted Answer

The answer of Suppose an economics professor receives a $10,000...

Question 2

The net balance on the balance of payments accounts:
A) always shows a surplus.
B) always shows a deficit.
C) is always zero.
D) can show either a surplus or a deficit.
E) is always positive.

Accepted Answer

The answer of The net balance on the balance of...

Question 3

A U.S. citizen's income from investment in foreign countries is _____ in the U.S. current account.
A) recorded as a deficit
B) recorded as a surplus
C) recorded as a debit
D) recorded as a credit
E) not recorded

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 4

Which of the following is included in a nation's current account?
A) Purchases of foreign assets
B) Borrowing from abroad
C) Foreign purchases of U.S. financial assets
D) Investment income receipts
E) Purchases of foreign real property

Accepted Answer

The current account includes transactions related to trade in goods and services, net investment income receipts, and net unilateral transfers. Investment income receipts, such as interest and dividends received from foreign investments, are included in the current account.

Therefore, the correct answer is D.

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
 $\begin{array}{|l|c|}
\hline \text { German 2010 Transactions } & \text { Millions of Euros } \
\hline \text { Capital Inflows } & € 1,420 \
\hline \text { Exports of Goods } & € 750 \
\hline \text { Imports of Services } & -€ 430 \
\hline \text { Investment Income Receipts } & € 400 \
\hline \text { Investment Income Payments } & € 670 \
\hline \text { Unilateral Transfers } & -€ 470 \
\hline \text { Exports of Services } & € 340 \
\hline \text { Imports of Goods } & -€ 790 \
\hline \text { Capital Outflows } & -€ 920 \
\hline
\end{array}$
-Refer to Table 6.1. Calculate the current account balance for Germany for the year 2011.
A) -€1,720
B) €500
C) -€870
D) €784
E) -€650

Accepted Answer

The current account balance is calculated as (Exports of Goods + Exports of Services + Investment Income Receipts) - (Imports of Goods + Imports of Services + Investment Income Payments + Unilateral Transfers). This equals (€750 + €340 + €400) - (€790 + €430 + €670 + €470) = €1,490 - €2,360 = -€870.

Question 6

When economists talk about a balance of payments "deficit," they refer to:
A) a net balance in the balance of payments that is less than zero.
B) a condition in which total debits exceed total credits in the balance of payments.
C) a deficit in one of the sub-accounts of the balance of payments.
D) a disequilibrium in the foreign exchange market.
E) a net loss in the trade of international goods and services.

Accepted Answer

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

Question 7

Which of the following would be entered as a credit in the financial account of the United States?
A) Purchase of U.S. Treasury bonds by Americans
B) Purchase of U.S. Treasury bonds by foreigners
C) Purchase of U.S. made cars by foreigners
D) U.S. income from tourism
E) Purchase of foreign stocks by U.S. investors

Accepted Answer

The answer of Which of the following would be entered...

Question 8

A U.S. tourist travels to Italy and spends $900 during the trip. How is this activity recorded in the U.S. current account?
A) Credit unilateral transfers for $900
B) Debit unilateral transfers for $900
C) Credit merchandise for $900
D) Debit services for $900
E) Credit services for $900

Accepted Answer

The activity is recorded as a debit in the services category because spending on tourism is considered a service import.

Question 9

Which of the following transactions will be included in the financial account of the balance of payments of any country?
A) Tourism
B) Import of goods
C) Investment in stock
D) Export of services
E) Insurance

Accepted Answer

The answer of Which of the following transactions will be...

Question 10

The statistical discrepancy account:
A) accounts for services.
B) accounts for gifts to foreigners.
C) is included to ensure a balance between debits and credits in the capital account.
D) estimates transactions that were omitted from the official reporting process.
E) causes the net balance in the balance of payments to be negative.

Accepted Answer

The statistical discrepancy account is included in the balance of payments to estimate transactions that were omitted from the official reporting process, such as unrecorded or misreported transactions. It is necessary to ensure a balance between debits and credits in the capital account but does not specifically account for services or gifts to foreigners. The inclusion of the statistical discrepancy account does not necessarily cause the net balance in the balance of payments to be negative.

Question 11

Which of the following would be included in the financial account of the U.S. balance of payments?
A) The U.S. government foreign aid
B) The purchase of stock in a U.S. corporation by a foreigner
C) The purchase of a Japanese computer by a U.S. corporation
D) The purchase of a plane ticket from Australian Airlines by an American
E) The purchase of a German car by an American

Accepted Answer

The answer of Which of the following would be included...

Question 12

Which of the following statements about the U.S. balance of payments in 2008 is true?
A) In the third quarter of 2008, the services account recorded a deficit of $25 million.
B) In the third quarter of 2008, the current account showed a surplus of $174,091 million.
C) In the third quarter of 2008, the merchandise account in the U.S. balance of payments showed a surplus of $171,157 million.
D) In the third quarter of 2008, the merchandise account in the U.S. balance of payments showed a deficit of $171,157 million.
E) In the third quarter of 2008, the services account recorded a deficit of $38,175 million.

Accepted Answer

The answer of Which of the following statements about the...

Question 13

The purchase of French wine by U.S. consumers will be accounted as:
A) a deficit in the services account.
B) a credit in the merchandise account.
C) a debit in the services account.
D) a surplus for U.S. net exports.
E) a debit in the merchandise account

Accepted Answer

The purchase of wine is a physical good and therefore would be accounted for in the merchandise account. Since the US is importing wine from France, it would be recorded as a debit in the merchandise account.

Question 14

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
 $\begin{array}{|l|c|}
\hline \text { German 2010 Transactions } & \text { Millions of Euros } \
\hline \text { Capital Inflows } & € 1,420 \
\hline \text { Exports of Goods } & € 750 \
\hline \text { Imports of Services } & -€ 430 \
\hline \text { Investment Income Receipts } & € 400 \
\hline \text { Investment Income Payments } & € 670 \
\hline \text { Unilateral Transfers } & -€ 470 \
\hline \text { Exports of Services } & € 340 \
\hline \text { Imports of Goods } & -€ 790 \
\hline \text { Capital Outflows } & -€ 920 \
\hline
\end{array}$
-Refer to Table 6.1. The statistical discrepancy in the balance of payments accounts for Germany in the year 2011 is:
A) €525.
B) -€800.
C) €250.
D) -€125.
E) -€370.

Accepted Answer

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

Question 15

The statistical discrepancy account is also referred to as:
A) omissions and errors.
B) econometric discrepancy.
C) statistical influence.
D) human flaws.
E) arbitrary human discrepancy.

Accepted Answer

The statistical discrepancy account is commonly known as omissions and errors.

Question 16

A gift from the British prime minister to the American president would be classified as a _____ in the balance of payments account.
A) capital transfer
B) capital receipt
C) universal receipt
D) unilateral transfer
E) foreign aid

Accepted Answer

The gift from the British prime minister to the American president would be classified as a unilateral transfer, which is a transfer of funds or assets from one country to another as a gift, donation, or aid with no expectation of anything in return.

Question 17

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
 $\begin{array}{|l|c|}
\hline \text { German 2010 Transactions } & \text { Millions of Euros } \
\hline \text { Capital Inflows } & € 1,420 \
\hline \text { Exports of Goods } & € 750 \
\hline \text { Imports of Services } & -€ 430 \
\hline \text { Investment Income Receipts } & € 400 \
\hline \text { Investment Income Payments } & € 670 \
\hline \text { Unilateral Transfers } & -€ 470 \
\hline \text { Exports of Services } & € 340 \
\hline \text { Imports of Goods } & -€ 790 \
\hline \text { Capital Outflows } & -€ 920 \
\hline
\end{array}$
-Refer to Table 6.1. Compute the merchandise trade balance of Germany in 2011.
A) -€800
B) -€130
C) -€40
D) €40
E) €130

Accepted Answer

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

Question 18

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.
A) universal transfer; financial
B) universal transfer; current
C) current; financial
D) capital; current
E) capital; financial

Accepted Answer

The current account reflects the movement of goods and services into and out of the country, while the financial account reflects the flow of financial assets into and out of the country. Therefore, option C (current; financial) is the correct answer. The other options are not accurate as there is no such thing as a universal transfer account, and capital account reflects only long-term investments in and out of the country, which is different from financial account.

Question 19

Which of the following statements is incorrect with respect to the balance of payments?
A) It constitutes a record of transactions between residents within one country.
B) It consists of a current account, a capital account, and an account to record omissions and errors.
C) Transactions that result in a demand for domestic currency are always entered as a credit.
D) It must balance in the aggregate, but separate accounts can show deficits or surpluses.
E) It constitutes a record of a country's trade in goods and services and financial assets.

Accepted Answer

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

Question 20

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
 $\begin{array}{|l|c|}
\hline \text { German 2010 Transactions } & \text { Millions of Euros } \
\hline \text { Capital Inflows } & € 1,420 \
\hline \text { Exports of Goods } & € 750 \
\hline \text { Imports of Services } & -€ 430 \
\hline \text { Investment Income Receipts } & € 400 \
\hline \text { Investment Income Payments } & € 670 \
\hline \text { Unilateral Transfers } & -€ 470 \
\hline \text { Exports of Services } & € 340 \
\hline \text { Imports of Goods } & -€ 790 \
\hline \text { Capital Outflows } & -€ 920 \
\hline
\end{array}$
-Refer to Table 6.1. Compute the capital account balance for Germany.
A) -€430
B) -€800
C) €180
D) €500
E) -€550

Accepted Answer

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

Quiz 6: An Introduction to the Foreign Exchange Market and the Balance of Payments

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:

The net balance on the balance of payments accounts:

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

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

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

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

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

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

The statistical discrepancy account:

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

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

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

The statistical discrepancy account is also referred to as:

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

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.

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