Question 1

A country's nonofficial financial account balance equals its net foreign investment.

Accepted Answer

A) True 
 B)False  False

Question 2

You are provided with the following information about a country's international transactions during a given year (in millions): $\begin{array}{ll}
\text { Serv ice exports } & \$ 346 \
\text { Service imports } & \$ 354 \
\text { Merchandise exports } & \$ 480 \
\text { Merchandise imports } & \$ 348 \
\text { Income flows, net } & \$ 153 \
\text { Gifts to foreigners } & \$ 142 \
\text { Increase in the country's holding of foreign assets, net } & \$ 352\
\text { (excluding official reserves assets) }\
\text { Increase in foreign holdings of the country's assets, net }&\$252\
\text { (excluding official reserves assets) }\
\text { Statistical discrepancy, net credit }&\$154
\end{array}$  Calculate the official settlements balance and the current account balance.
Is the country increasing or decreasing its net holdings of official reserve assets? Why?

Accepted Answer

The calculations are furnished as below:
Current account balance: $(346 - 354 + 480 - 348 + 153 - 142) = $135 million (surplus)
Official settlements balance: $(346 - 354 + 480 - 348 +153 -142 + 252 - 352 + 154) = $189 million (surplus)
Here we see that the country's overall balance is in surplus. This has to be counter balanced by an increase in the official reserve holdings.
Change in official reserve assets (net) = -official settlements balance = -$189 million
Thus, the country is increasing its net holdings of official reserve assets by $189 million.

Question 3

A country has a current account deficit if it is saving more than it is investing domestically.

Accepted Answer

A) True 
 B)False  False

Question 4

A nation's international investment position shows its stock of international assets and liabilities at a point in time.

Accepted Answer

A) True 
 B)False

Question 5

The difference between a country's purchases of foreign assets minus foreign purchases of the country's assets during a period of time is:

Accepted Answer

A) net official reserves. 
B) net domestic investment. 
C) net foreign investment. 
D) net foreign surplus. 
A) net official reserves. 
B) net domestic investment. 
C) net foreign investment. 
D) net foreign surplus.

Question 6

The net value of flows of goods, services, income, and unilateral transfers is described as the:

Accepted Answer

A) capital account balance. 
B) current account balance. 
C) trade balance. 
D) official reserve balance. 
A) capital account balance. 
B) current account balance. 
C) trade balance. 
D) official reserve balance.

Question 7

Which of the following capital transaction items is entered as a debit in the U.S. balance of payments?

Accepted Answer

A) A U.S.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 U.S.resident sells his IBM stock to a French resident. 
D) A U.S.resident sells his Credit Suisse stock to a French resident. 
A) A U.S.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 U.S.resident sells his IBM stock to a French resident. 
D) A U.S.resident sells his Credit Suisse stock to a French resident.

Question 8

A debit item in the balance of payments is:

Accepted Answer

A) any foreign aid received by the country. 
B) an item for which the country must pay. 
C) any exported item. 
D) an item that creates a monetary claim on a foreigner. 
A) any foreign aid received by the country. 
B) an item for which the country must pay. 
C) any exported item. 
D) an item that creates a monetary claim on a foreigner.

Question 9

A deficit in the current account:

Accepted Answer

A) is accompanied by an equal amount of surplus in the financial account or in official international reserves. 
B) tends to cause a deficit in the financial account. 
C) does not affect the financial account or official international reserves. 
D) is the result of increasing exports and decreasing imports. 
A) is accompanied by an equal amount of surplus in the financial account or in official international reserves. 
B) tends to cause a deficit in the financial account. 
C) does not affect the financial account or official international reserves. 
D) is the result of increasing exports and decreasing imports.

Question 10

The current account balance does NOT equal:

Accepted Answer

A) the difference between domestic product and domestic expenditure. 
B) the difference between national saving and domestic investment. 
C) net foreign investment. 
D) the difference between government saving and government investment. 
A) the difference between domestic product and domestic expenditure. 
B) the difference between national saving and domestic investment. 
C) net foreign investment. 
D) the difference between government saving and government investment.

Question 11

A nation is a borrower if its current account is in deficit at a point in time.

Accepted Answer

A) True 
 B)False

Question 12

_____ are money-like assets that are held by governments and that are recognized by governments as fully acceptable for payments between them.

Accepted Answer

A) Official international reserve assets 
B) Unofficial international assets 
C) Official domestic assets 
D) Unofficial reserve assets 
A) Official international reserve assets 
B) Unofficial international assets 
C) Official domestic assets 
D) Unofficial reserve assets

Question 13

If a British businessman sells U.S. government securities to a U.S. buyer, how will this item be entered in the balance of payments?

Accepted Answer

A) It will appear in the trade account as an import. 
B) It will appear in the trade account as an export. 
C) It will appear in the financial account as an increase in foreign assets held by U.S.residents. 
D) It will appear in the financial account as a decrease in the U.S.assets held by foreigners. 
A) It will appear in the trade account as an import. 
B) It will appear in the trade account as an export. 
C) It will appear in the financial account as an increase in foreign assets held by U.S.residents. 
D) It will appear in the financial account as a decrease in the U.S.assets held by foreigners.

Question 14

Official reserve assets are:

Accepted Answer

A) the gold holdings in the nation's central bank. 
B) money like assets that are held by governments and that are recognized by governments as fully acceptable for payments between them. 
C) government T-bills and T-bonds. 
D) government holdings of SDR's. 
A) the gold holdings in the nation's central bank. 
B) money like assets that are held by governments and that are recognized by governments as fully acceptable for payments between them. 
C) government T-bills and T-bonds. 
D) government holdings of SDR's.

Question 15

A country that is saving more than it is investing domestically:

Accepted Answer

A) has a current account surplus. 
B) has a financial account deficit. 
C) has a trade balance. 
D) has a trade disequilibrium. 
A) has a current account surplus. 
B) has a financial account deficit. 
C) has a trade balance. 
D) has a trade disequilibrium.

Question 16

If the overall balance in the balance of payments account is in _____, there can be an accumulation of official reserve assets by the country or a decrease in foreign official reserve holdings of the country's assets.

Accepted Answer

A) surplus 
B) deficit 
C) equilibrium 
D) remission 
A) surplus 
B) deficit 
C) equilibrium 
D) remission

Question 17

The current account balance is equal to the difference between domestic product and national expenditure.

Accepted Answer

A) True 
 B)False

Question 18

When a U.S. resident increases her holdings of a foreign financial asset, this item is recorded as a:

Accepted Answer

A) credit entry in the U.S.current account. 
B) debit entry in the U.S.current account. 
C) credit entry in the U.S.capital account. 
D) debit entry in the U.S.capital account. 
A) credit entry in the U.S.current account. 
B) debit entry in the U.S.current account. 
C) credit entry in the U.S.capital account. 
D) debit entry in the U.S.capital account.

Question 19

A deficit in the overall balance of payments of a nation generally is an indication that:

Accepted Answer

A) the country's monetary authority is selling foreign currency. 
B) the country's monetary authority is buying foreign currency. 
C) the country's monetary authority is buying domestic government bonds. 
D) the country's monetary authority is selling domestic currency. 
A) the country's monetary authority is selling foreign currency. 
B) the country's monetary authority is buying foreign currency. 
C) the country's monetary authority is buying domestic government bonds. 
D) the country's monetary authority is selling domestic currency.

Question 20

In a country's balance of payments, which of the following items will be recorded as a debit entry?

Accepted Answer

A) Domestic bank balances owned by foreigners are reduced 
B) Foreign bank balances owned by domestic residents are reduced 
C) Assets owned by domestic residents are sold to nonresidents 
D) Securities are sold by domestic residents to nonresidents 
A) Domestic bank balances owned by foreigners are reduced 
B) Foreign bank balances owned by domestic residents are reduced 
C) Assets owned by domestic residents are sold to nonresidents 
D) Securities are sold by domestic residents to nonresidents

Exam 16: Payments Among Nations

A country's nonofficial financial account balance equals its net foreign investment.

A country has a current account deficit if it is saving more than it is investing domestically.

A nation's international investment position shows its stock of international assets and liabilities at a point in time.

The difference between a country's purchases of foreign assets minus foreign purchases of the country's assets during a period of time is:

The net value of flows of goods, services, income, and unilateral transfers is described as the:

Which of the following capital transaction items is entered as a debit in the U.S. balance of payments?

A debit item in the balance of payments is:

A deficit in the current account:

The current account balance does NOT equal:

A nation is a borrower if its current account is in deficit at a point in time.

_____ are money-like assets that are held by governments and that are recognized by governments as fully acceptable for payments between them.

If a British businessman sells U.S. government securities to a U.S. buyer, how will this item be entered in the balance of payments?

Official reserve assets are:

A country that is saving more than it is investing domestically:

If the overall balance in the balance of payments account is in _____, there can be an accumulation of official reserve assets by the country or a decrease in foreign official reserve holdings of the country's assets.

The current account balance is equal to the difference between domestic product and national expenditure.

When a U.S. resident increases her holdings of a foreign financial asset, this item is recorded as a:

A deficit in the overall balance of payments of a nation generally is an indication that:

In a country's balance of payments, which of the following items will be recorded as a debit entry?

International Economics Is Different

The Basic Theory Using Demand and Supply

Why Everybody Trades: Comparative Advantage

Trade: Factor Availability and Factor Proportions Are Key

Who Gains and Who Loses From Trade

Scale Economies, Imperfect Competition, and Trade

Growth and Trade Part II: Trade Policy

Analysis of a Tariff

Nontariff Barriers to Imports

Arguments for and Against Protection

Pushing Exports

Trade Blocs and Trade Blocks

Trade and the Environment

Trade Policies for Developing Countries

Multinationals and Migration: International Factor Movements

The Foreign Exchange Market

Forward Exchange and International Financial Investment

What Determines Exchange Rates

Government Policies Toward the Foreign Exchange Market

International Lending and Financial Crises

How Does the Open Macroeconomy Work

Internal and External Balance With Fixed Exchange Rates

Floating Exchange Rates and Internal Balance

National and Global Choices: Floating Rates and the Alternatives

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