#2 IF - Balance of Payment

#2 IF - Balance of Payment

Multiple Choice

What is BOP?

• statement of all transactions made between one country and the rest of the world

• statement of all transactions made between one country and the rest of the world over a defined period of time

• the amount still owed by an exporting firm after making an initial down payment.

• the amount still owed by governments to the International Monetary Fund.

Multiple Select

Fundamentals of B O P Accounting

• credit - inflow of foreign exchange to the country

• debit - outflow of foreign exchange to the country

• B O P must balance

• B O P can be unbalance

Multiple Select

Which of the following is a major subaccount of the Balance of Payments? (you can tick more than one)

• the financial account

• the accounts payable

• the capital account

• the current account

Current Account includes all international economic transactions with income or payment flows occurring within one year, the current period. It consists of the following four subcategories:

• Goods trade and import of goods

• Services trade

• Income

• Current transfers

The Capital Accounts

The capital account is made up of transfers of financial assets and the acquisition and disposal of nonproduced/nonfinancial assets

The Financial Account

The financial account consists of four components—direct investment, portfolio investment, net financial derivatives, and other asset investment.

Net Errors and Omissions and Official Reserves Accounts

• The Net Errors and Omissions account ensures that the B O P actually balances.

• The Official Reserves Account is the total reserves held by official monetary authorities within the country.

• These reserves are normally composed of the major currencies used in international trade and financial transactions (hard currencies).

Multiple Choice

Which of the following international transactions would NOT be counted as a balance of payments (BOP) transaction?

• The Malaysian subsidiary of a British firm pays profits (dividends) back to its parent firm in London.

• An international student purchases food in UKM

• A Malaysian investor purchases a Japan corporate bond through an investment broker in Tokyo.

• All of the above are considered BOP transactions.

Multiple Choice

Which of the following is NOT part of the Financial Account of the BOP?

• net foreign direct investment

• net import/export of services

• net portfolio investment

• other Financial items

Multiple Select

B O P Impacts on Key Macroeconomic Rates

• exchange rates

• unemployment rate

• interest rates

• inflation rates

Equation for the BOP 

BOP = (X-M) + (CI-CO) + (FI-FO) + FXB

(X-M) = Current Account Balance

(CI-CO) = Capital Account Balance

(FI-FO) = Financial Account Balance

(I-S) = Investment-Saving Balance 

FXB = Reserve Balance

BOP = balance of payments

GDP = gross domestic product

C = consumption

I = capital investment spending

G = government spending

Multiple Choice

________ is the cross-border purchase of assets that are then managed in a way that hides the movement of money and its ownership.

• Irrational exuberance

• Capital flight

• Capital mobility

• Money laundering

Multiple Choice

The Dutch Disease problem arises when a country has such a strong commodity export that it _________________ the value of that country’s real exchange rate.

• stagnates

• deflates

• raises

• lowers

Multiple Select

Tick correct answer(s) about Capital flight.

• large-scale shift in investor preferences

• country-specific event

• strongly positive effect on the economy

• macroeconomic development