Exam 4: The Balance of Payments

Of the following, which is NOT a part of J-Curve adjustment path?

A country's overall level of interest rates should have an impact on the financial account of the BOP. Relatively low real interest rates should normally stimulate an outflow of capital seeking higher interest rates in other country currencies.

Balance of payment (BOP)data may be important for any of the following reasons:

In general there is consensus that ________ should be free, but there is no such consensus that ________ should be free.

The balance of payments as applied to a course in international finance may be defined as:

The transition to floating exchange rate regimes in the 1970s (described in Chapter 3)changed the focus from the total BOP to its various subaccount like the current and financial account balances.

What is the Official Reserves Account (ORA), and why is it more important for countries under a fixed exchange rate regime than for ones under a floating exchange rate regime?

When the world went to a system of floating exchange rates, the Balance of Payments became a relic of a system of fixed exchange rates and is no longer watched by serious economic groups.

Which of the following is NOT an item to be considered in BOP calculations?

Dutch Disease is a term applied to a problem in the 1970 whereby the Netherlands were experiencing massive and sudden inflows of capital from abroad. What was the cause of this sudden influx of capital, and what types of potential problems did it have for the Dutch or could it have for any small single resource country?

The effect of an imbalance in the BOP is the same for countries on a fixed exchange rate regime as for those on a floating exchange rate regime.

Which of the following is NOT a part of the Current Account of BOP?

Under a fixed exchange rate system, the government bears the responsibility to ensure that the BOP is near zero. If the sum of the current and capital accounts do not approximate zero, the government is expected to intervene in the foreign exchange market by buying or selling official foreign exchange reserves. If the sum of the first two accounts is LESS THAN ZERO, a ________ demand for the domestic currency exists in the world. To preserve the fixed exchange rate, the government must then intervene in the foreign exchange market and ________ domestic currency for foreign currencies or gold so as to bring the BOP back near zero.

The BOP must be in balance, but the current account need not be.

A country with a managed float that wishes to WEAKEN its currency may choose to raise domestic interest rates to attract additional capital from abroad.

The ________ of the balance of payments measures all international economic transactions of financial assets.

Which of the following statements about the balance of payments is NOT true?

The authors identify four distinct periods of capital mobility since 1860. Which do they term as a "period of global economic destruction"?

China's current political plan includes reducing their foreign exchange reserve balance by allowing the yuan to float freely and by switching their goods balance from one of a net surplus to a net deficit.

Imports have the potential to lower a country's inflation rate. In particular, imports of HIGHER-priced goods and services place a limit on what domestic competitors charge for comparable goods and services.