Topic 6.1 Balance of Payments

The balance of payments is comprised of which two main accounts?

• Current account and capital account

• Capital account and trade balance

• Financial account and trade balance

• Current account and financial account

• Trade balance and exchange rate account

Which of the following transactions would be included in a country's current account?

• A U.S. firm purchasing a factory in Canada

• A U.S. investor buying shares of a German company

• A U.S. citizen receiving dividends from a foreign stock investment

• A Chinese firm purchasing land in the U.S.

• A U.S. company borrowing from a European bank

A surplus in the current account means that a country is experiencing:

• More imports than exports

• More exports than imports

• A net outflow of financial capital

• A depreciating currency

• A reduction in foreign reserves

If a country's financial account has a surplus, this means that:

• It is exporting more than it is importing

• It is importing more than it is exporting

• It has a net inflow of financial capital

• Its currency is appreciating

• It is running a trade surplus

The purchase of foreign assets by domestic residents is recorded as:

• A credit in the current account

• A credit in the financial account

• A debit in the financial account

• A debit in the current account

• A debit in the capital account

A deficit in the U.S. current account must be offset by:

• A surplus in the capital account

• A surplus in the financial account

• A depreciation of the U.S. dollar

• A reduction in imports

• An increase in exports

A U.S. company purchasing machinery from Japan would be recorded as:

• A credit in the U.S. current account

• A debit in the U.S. current account

• A debit in the U.S. financial account

• A credit in the U.S. financial account

• A credit in the U.S. capital account

If a country has a trade surplus, then it must also have:

• A financial account surplus

• A financial account deficit

• A depreciating currency

• A budget deficit

• A lower interest rate

Which of the following is included in the U.S. financial account?

• U.S. exports of cars to Canada

• A Japanese firm buying U.S. Treasury bonds

• A U.S. worker sending money to family in Mexico

• A U.S. citizen receiving dividends from a British stock investment

• A U.S. tourist buying souvenirs in France

A depreciation of the U.S. dollar will likely:

• Increase the current account deficit

• Decrease exports

• Decrease imports

• Cause a financial account surplus

• Have no impact on trade balances