Balance of Payments Quiz

What is the Balance of Payments (BoP)?

• A record of a country's total debts.

• A record of all the economic transactions between a country and the rest of the world during a given time period.

• A financial statement of a country's exports only.

• A list of a country's economic sanctions.

Answer explanation

The Balance of Payments (BoP) is a record of all the economic transactions between a country and the rest of the world during a given time period, making it the correct choice.

What does the current account of the BoP include?

• Only the country's international trade in goods.

• Transactions related to imports, exports, and foreign income earned/received.

• Only the country's international trade in services.

• Transactions related only to foreign borrowing and the sale of foreign assets.

Answer explanation

The current account of the BoP includes transactions related to imports, exports, and foreign income earned/received, making it the correct choice.

What is recorded in the capital and financial account (capital account) of the BoP?

• The country's total export and import of goods.

• The country's budget allocation for the fiscal year.

• Transfers of assets between countries, foreign investment, and changes in currency reserves.

• The country's internal financial transactions only.

Answer explanation

The capital and financial account of the BoP records transfers of assets between countries, foreign investment, and changes in currency reserves.

How is an inflow of money into the country recorded in the BoP?

• As a negative amount.

• It is not recorded in the BoP.

• As a positive amount.

• As a neutral transaction.

Answer explanation

An inflow of money into the country is recorded in the BoP as a positive amount, indicating a surplus in the balance of payments.

How is an outflow of money from the country recorded in the BoP?

• As a positive amount.

• As a neutral transaction.

• It is not recorded in the BoP.

• As a negative amount.

Answer explanation

An outflow of money from the country is recorded in the BoP as a negative amount, indicating a deficit in the balance of payments.

What is the outcome when current account is is positive?

• Capital account deficit

• Current account deficit

• Capital account surplus

• Current account surplus

Answer explanation

A current account surplus is referred to when the balance is positive, indicating that a country is exporting more than it is importing.

What does a negative balance on the capital and financial account indicate?

• Capital account surplus

• Current account surplus

• Capital account deficit

• Current account balance

Answer explanation

A negative balance on the capital and financial account indicates a capital account deficit, not a surplus or current account balance.

Which of the following is true about the balance of payments?

• The current account and capital account should not balance.

• The current account is the only part of the balance of payments.

• Any difference between the current account and capital and financial account is usually due to changing weather conditions.

• A positive balance in the current account is always due to direct investment inflows.

Answer explanation

The correct choice is that any difference between the current account and capital and financial account is usually due to measurement errors or omissions.

What is 'primary income' related to in the context of the current account?

• Income from investments abroad

• Income such as interest, profits, and wages paid to and received from foreigners

• Transfers such as gifts, pensions, and foreign aid

• Balance of trade in goods and services

Answer explanation

'Primary income' in the context of the current account refers to income such as interest, profits, and wages paid to and received from foreigners.

What does a negative 'net goods' mean in the balance of trade?

• The country exports more than it imports

• The country imports more than it exports

• The country has a balanced trade

• The country has stopped trading internationally

Answer explanation

A negative 'net goods' in the balance of trade means the country imports more than it exports, resulting in a trade deficit.