Question 1

The account that records foreign investment in the United States minus U.S. investment abroad is the
A) capital and financial account.
B) official settlements account.
C) current account.
D) U.S. official reserves account.

Accepted Answer

The capital and financial account records the flow of funds between a country and the rest of the world, including foreign investment in the United States and U.S. investment abroad. It is calculated as the difference between the inflow of foreign investment in the United States and the outflow of U.S. investment abroad, and is a component of a country's balance of payments.

Question 2

The largest part of the U.S. current account consists of
A) Fed transfers of U.S. dollars to other central banks.
B) net transfer payments between the United States and Mexico.
C) receipts from exports and payments for imports.
D) net borrowing between the United States and other countries.

Accepted Answer

The current account measures the flow of goods, services, and investment income between a country and the rest of the world. The largest part of the U.S. current account consists of receipts from exports and payments for imports, which is commonly referred to as the trade balance. This includes both goods and services. The U.S. has consistently run a trade deficit, meaning that we import more than we export, resulting in a negative balance in the current account.

Question 3

Which of the following is included in a nation's current account?
I.the import of services
II.a change of foreign currency holdings
III.net transfers, such as foreign aid payments
A) I and III
B) I and II
C) II and III
D) III only

Accepted Answer

The current account measures a nation's trade in goods and services with other nations, as well as net transfers (such as foreign aid payments) and changes in foreign currency holdings. Therefore, options I and III are included in a nation's current account, while option II is part of the capital account.

Question 4

The official settlements account records the change in ________.
A) international trade
B) U.S. official reserves
C) foreign investment and domestic investment
D) the reserves held by banks and the Fed

Accepted Answer

The official settlements account records the change in U.S. official reserves, which include foreign currencies, gold, special drawing rights (SDRs), and reserve position in the International Monetary Fund (IMF). It measures the overall balance of payments between the United States and other countries.

Question 5

The capital and financial account measures ________.
A) foreign investment in the United States minus U.S. investment abroad
B) capital produced outside of the United States minus capital produced inside the United States
C) capital used inside the United States but manufactured outside the United States
D) capital used outside the United States but manufactured inside the United States

Accepted Answer

The capital and financial account is one component of a country's balance of payments, which measures the inflow and outflow of money between a country and its trading partners. The capital and financial account specifically measures foreign investment in the country (such as purchasing stocks or building factories) minus the country's investment abroad (such as investing in foreign stocks or building factories in other countries). Therefore, choice A is the correct answer. Choices B, C, and D do not accurately describe the capital and financial account.

Question 6

A German publishing company buys an American publishing company based in New York. In the U.S. balance of payments accounts, this transaction directly appears in
A) the official settlements account.
B) the imports part of the current account.
C) the net transfers part of the current account.
D) the capital and financial account.

Accepted Answer

The purchase of an American publishing company by a German publishing company represents a foreign direct investment (FDI) and would be recorded in the capital and financial account of the U.S. balance of payments accounts.

Question 7

An American consumer buys a French luxury product in New York. In the U.S. balance of payments accounts, this transaction directly appears in
A) the official settlements account.
B) the imports part of the current account.
C) the net transfers part of the current account.
D) the capital and financial account.

Accepted Answer

The transaction of buying a French luxury product in New York represents an import of goods, which is a component of the current account in the U.S. balance of payments. The current account records all transactions related to trade in goods and services, as well as income earned from foreign investments and unilateral transfers. The official settlements account is not used in modern balance of payments accounting, and the transaction does not relate to net transfers or capital and financial account flows.

Question 8

The current account
A) measures our exports minus our imports taking into account interest payments paid to and received from the rest of the world.
B) measures our imports minus our exports.
C) does not account for interest payments paid to and received from the rest of the world.
D) is part of GDP.

Accepted Answer

The current account measures the balance of trade in goods and services, along with income flows, such as interest payments paid to and received from the rest of the world. Therefore, option A is the correct choice. Option B is incorrect as it shows imports minus exports, which does not take into account income flows. Option C is also incorrect as it fails to consider income flows, and Option D is also incorrect as the current account is not a part of GDP, but rather a part of the balance of payments.

Question 9

Which of the following is included in a nation's capital and financial account?
I.the purchase of foreign stocks and bonds
II.the sale of foreign stocks and bonds
III.importing a piece of capital equipment
A) I only
B) I and II
C) III only
D) I, II and III

Accepted Answer

The purchase and sale of foreign stocks and bonds are included in a nation's financial account, while the importing of capital equipment is included in the current account. Therefore, only options I and II are part of the capital and financial account.

Question 10

Which of the following is NOT included in the U.S. current account?
A) U.S. investment abroad
B) net interest income
C) net transfers
D) imports of goods and services

Accepted Answer

U.S. investment abroad is part of the financial account, not the current account. The current account includes net interest income, net transfers, and imports and exports of goods and services.

Question 11

The current account records all transactions below EXCEPT for
A) net exports of goods and services.
B) net interest income.
C) net foreign investment.
D) net transfers.

Accepted Answer

The current account records all transactions involving goods, services, income, and current transfers. Net foreign investment is recorded in the capital and financial account, not the current account.

Question 12

Which of the following accounts records the change in U.S. official reserves?
A) current account
B) capital and financial account
C) official settlements account
D) none of the above

Accepted Answer

The official settlements account records the change in U.S. official reserves, which includes foreign currencies, gold, and SDRs held by the U.S. Treasury and the Federal Reserve. The current account records transactions for goods, services, income, and unilateral transfers between the U.S. and other countries. The capital and financial account records inflows and outflows of capital between the U.S. and other countries, such as direct investment, portfolio investment, and loans. Therefore, the correct answer is C) official settlements account.

Question 13

Suppose that the U.S. government gives foreign aid to Turkey. This transaction would directly
A) increase the U.S. current account.
B) decrease the U.S. current account.
C) increase the U.S. capital and financial account.
D) decrease the U.S. capital and financial account.

Accepted Answer

Foreign aid given by the U.S. government to Turkey represents an outflow of funds from the U.S., which ultimately decreases the U.S. current account balance.

Question 14

Which international account is used to record payments for imports, receipts from exports, net interest paid abroad and net transfers?
A) the capital and financial account
B) the current account
C) the official settlements account
D) the trade account

Accepted Answer

The current account is used to record payments for imports, receipts from exports, net interest paid abroad and net transfers. The capital and financial account records capital flows in and out of a country, including foreign direct investment and portfolio investment. The official settlements account is not a commonly used term in international accounting. The trade account typically only records the value of goods traded between countries.

Question 15

The balance of payments account which records foreign investment in the United States and U.S. investments abroad is the
A) capital and financial account.
B) current account.
C) official settlements account.
D) None of the above because foreign investment in the United States is included in one account and U.S. investment abroad is included in another account.

Accepted Answer

The capital and financial account records foreign investment in the United States and U.S. investments abroad, making it the most appropriate choice. The current account measures the flow of goods and services between countries, while the official settlements account is a subcategory of the capital and financial account that tracks official transactions between governments. The statement "None of the above because foreign investment in the United States is included in one account and U.S. investment abroad is included in another account" is incorrect because both types of investment are included in the same account (capital and financial).

Question 16

The current account is
A) the difference between exports and imports, also taking into account interest payments to and from the rest of the world.
B) the amount of money the government keeps on hand to pay its bills taking account of the interest payments on its debt.
C) is the amount of tax revenue that the government expects to collect.
D) is the total amount of interest payments that the U.S. owes to foreign countries.

Accepted Answer

The current account is the balance of trade between a country and the rest of the world, taking into account not only the difference between exports and imports of goods and services, but also income flows such as interest payments and transfers.

Question 17

Which of the following transactions directly leads to a surplus on the U.S. capital and financial account?
A) An American purchases a share of stock on the Tokyo exchange.
B) An American sells wheat to an African nation.
C) A Japanese resident purchases a U.S. government bond.
D) A resident of France visits the United States.

Accepted Answer

When a foreign resident purchases a U.S. government bond, they are directly investing in the U.S. economy and creating a surplus on the U.S. capital and financial account. Choices A, B, and D do not directly involve an investment in the U.S. economy and therefore do not lead to a surplus on the U.S. capital and financial account.

Question 18

A negative balance in the capital and financial account means the economy is
A) lending to the rest of the world.
B) running a capital account surplus.
C) borrowing from the rest of the world.
D) importing more than it is exporting.

Accepted Answer

The answer of A negative balance in the capital and...

Question 19

Which of the following contributes to a current account surplus for a country?
A) having tourists visit the country
B) importing textiles
C) having foreigners buy government securities from the country's government
D) importing financial services

Accepted Answer

Tourists visiting a country contribute to a current account surplus because they spend money on goods and services within the country, increasing the country's exports.

Question 20

Which of the following transactions is NOT recorded in the capital and financial account?
A) foreign investment in the United States
B) U.S. investment abroad
C) statistical discrepancy
D) net interest income

Accepted Answer

The answer of Which of the following transactions is NOT...

Quiz 9: The Exchange Rate and the Balance of Payments

The account that records foreign investment in the United States minus U.S. investment abroad is the

The largest part of the U.S. current account consists of

Which of the following is included in a nation's current account? I.the import of services II.a change of foreign currency holdings III.net transfers, such as foreign aid payments

The official settlements account records the change in ________.

The capital and financial account measures ________.

A German publishing company buys an American publishing company based in New York. In the U.S. balance of payments accounts, this transaction directly appears in

An American consumer buys a French luxury product in New York. In the U.S. balance of payments accounts, this transaction directly appears in

The current account

Which of the following is included in a nation's capital and financial account? I.the purchase of foreign stocks and bonds II.the sale of foreign stocks and bonds III.importing a piece of capital equipment

Which of the following is NOT included in the U.S. current account?

The current account records all transactions below EXCEPT for

Which of the following accounts records the change in U.S. official reserves?

Suppose that the U.S. government gives foreign aid to Turkey. This transaction would directly

Which international account is used to record payments for imports, receipts from exports, net interest paid abroad and net transfers?

The balance of payments account which records foreign investment in the United States and U.S. investments abroad is the

The current account is

Which of the following transactions directly leads to a surplus on the U.S. capital and financial account?

A negative balance in the capital and financial account means the economy is

Which of the following contributes to a current account surplus for a country?

Which of the following transactions is NOT recorded in the capital and financial account?