4.4 External Balance

Which of the following would be classified under the "Current Account" of the Balance of Payments?

• Foreign direct investment

• Import of goods

• Repayment of a foreign loan

• Purchase of foreign currency reserves

If Australia exports more services than it imports, how would this impact its Balance of Payments?

• It would lead to a current account surplus.

• It would lead to a current account deficit.

• It would have no effect on the current account balance.

• It would shift the surplus to the capital account.

How would a significant increase in a country's imports affect its exchange rate?

• The currency would appreciate due to higher demand.

• The currency would depreciate due to higher supply

• The currency would remain unchanged.

• The exchange rate would be determined solely by interest rates.

Under a floating exchange rate system, exchange rates are primarily determined by:

• Central bank interventions only.

• Supply and demand in the foreign exchange market.

• Government-imposed fixed rates.

• The gold standard.

Which of the following transactions would be recorded in the "Capital and Financial Account" of the Balance of Payments?

• Export of machinery to another country

• A foreign individual buying real estate in the country

• Import of consumer goods

• Payment for services provided by a foreign consultant