Exercises
1.Single-choice questions
(1)A country’s balance of payments records________.
a.the value of all exports of goods and services from that country for a period of time
b.all flows of value between that country’s residents and residents of the rest of the world during a period of time
c.all flows of financial assets that cross that country’s borders during a period of time
d.all flows of goods into that country during a period of time
(2)A credit item in the balance of payments is________.
a.an item for which the country must be paid
b.an item for which the country must pay
c.any imported item
d.an item that creates a monetary claim owed to a foreigner
(3)Every international exchange of value is entered into the balance-of-payments accounts________time(s).
a.1 b.2 c.3 d.4
(4)A debit item in the balance of payments is________.
a.an item for which the country must be paid
b.an item for which the country must pay
c.any exported item
d.an item that creates a monetary claim on a foreigner
(5)Which of the following capital transactions are entered as debits in the US balance of payments?
a.A US resident transfers $100 from his account at Credit Suisse in Basel (Switzerland)to his account at a San Francisco branch of Wells Fargo Bank.
b.A French resident transfers $100 from his account at Wells Fargo Bank in San Francisco to his Credit Suisse account in Basel.
c.A US resident sells his IBM stock to a French resident.
d.A US resident sells his Credit Suisse stock to a French resident.
(6)An increase in a nation’s financial liabilities to foreign residents is a________.
a.reserve inflow b.reserve outflow
c.capital inflow d.capital outflow
(7)________are money-like assets that are held by governments and that are recognized by governments as fully acceptable for payments between them.
a.Official international reserve assets
b.Unofficial international reserve assets
c.Official domestic reserve assets
d.Unofficial domestic reserve assets
(8)Which of the following is considered a capital inflow?
a.A sale of US financial assets to a foreign buyer.
b.A loan from a US bank to a foreign borrower.
c.A purchase of foreign financial assets by a US buyer.
d.A US citizen’s repayment of a loan from a foreign bank.
(9)A US resident increasing her holdings of a foreign financial asset causes a________.
a.credit in the US current account b.debit in the US current account
c.credit in the US capital account d.debit in the US capital account
(10)In the balance of payments, the statistical discrepancy or error term is used to________.
a.ensure that the sum of all debits matches the sum of all credits
b.ensure that imports equal the value of exports
c.obtain an accurate account of a balance-of-payments deficit
d.obtain an accurate account of a balance-of-payments surplus
(11)The net accumulation of foreign assets minus foreign liabilities is________.
a.net official reserves
b.net domestic investment
c.net foreign investment
d.net foreign deficit
(12)In a nation’s balance of payments, which one of the following items is always recorded as a positive entry?
a.Changes in foreign currency reserves.
b.Imports of goods and services.
c.Military foreign aid supplied to allied nations.
d.Purchases by foreign travelers visiting the country.
(13)The role of________is to direct one nation’s savings into another nation’s investments.
a.merchandise trade flows b.services flows
c.current account flows d.capital flows
(14)A foreign resident increasing her holdings of a US financial asset causes a________.
a.credit in the US current account b.debit in the US current account
c.credit in the US capital account d.debit in the US capital account
(15)In September, 2005, exports of goods from the US decreased $3.3 billion to $73.4 billion, and imports of goods increased $3.8 billion to $144.5 billion.This increased the deficit in________.
a.the balance of payments b.the financial account
c.the current account d.unilateral transfers
(16)Which of the following would contribute to a US current account surplus?
a.The US makes a unilateral tariff reduction on imported goods.
b.The US cuts back on American military personnel stationed in Japan.
c.US tourists travel in large numbers to Asia.
d.Russian vodka becomes increasingly popular in the United States.
(17)In a country’s balance of payments, which of the following transactions are debits?
a.Domestic bank balances owned by foreigners are decreased.
b.Foreign bank balances owned by domestic residents are decreased.
c.Assets owned by domestic residents are sold to nonresidents.
d.Securities are sold by domestic residents to nonresidents.
(18)The net value of flows of goods, services, income, and unilateral transfers is called the________.
a.capital account b.current account
c.trade balance d.official reserve balance
(19)The sum of all of the debit items in the balance of payments________.
a.equals the overall balance
b.equals the sum of all credit items
c.equals “compensating” transactions
d.equals the sum of credit items minus errors and omissions
(20)A deficit in the current account________.
a.tends to cause a surplus in the financial account
b.tends to cause a deficit in the financial account
c.has no relationship to the financial account
d.is the result of increasing exports and decreasing imports
2.True/False questions
(1)Capital inflows are debits and capital outflows are credits.
(2)The net value of the flow of goods, services, income, and gifts is the current account balance.
(3)The majority of countries’ official reserves assets are now foreign exchange assets, financial assets denominated in a foreign currency that is readily acceptable in international transactions.
(4)A country has a current account deficit if it is saving more than it is investing domestically.
(5)The official settlements balance measures the sum of the capital account balance plus the public current account balance.
(6)A low inflation rate tends to increase imports and decrease exports, thereby decreasing the current account deficit, other things equal.
3.Noun explanation
(1)Balance of payments
(2)Credit
(3)Debit
(4)Current account
(5)Capital account
(6)Counterpart items
(7)Basic balance
(8)Official settlement balance
(9)Governments tend to interfere with markets in two fundamental ways
(10)Process of adjustment
(11)Official international reserve assets
(12)Official settlements balance
4.Questions and calculations
Given the following information of a certain country in 2012:
Service exports $346
Service imports $354
Merchandise exports $480
Merchandise imports $348
Income flows, net $153
Unilateral transfers, net $142
Increase in the country holding of foreign assets, net (excluding official reserves assets)$352
Increase in foreign holdings of the country assets, net (excluding official reserve assets)$252
Statistical discrepancy, net $154
Please calculate the current account balance, the official settlement balance and the change in official reserve assets.