Exam 4: The Balance of Payments

For at least the last decade, the United States has consistently run a surplus in services trade income.

As of year-end 2010, the United States still held the world's largest foreign exchange reserve, but the total was rapidly being approached by China.

An excess of merchandise exports over merchandise imports results in a balance of trade deficit.

Use the following terms for this question: C = consumption I = capital investment spending G = government spending X = exports of goods and services M = imports of goods and services BOP = balance of payments GDP = gross domestic product NPV = net present value INF = inflation R = real rate of return The static equation for the nations GDP is:

Consider the following: A foreign automobile company builds a manufacturing plant in Tennessee and European investors buy U.S. Treasury Bonds.

Which of the following is NOT a major subaccount of the Balance of Payments?

Changes in the BOP may predict the imposition or removal of foreign exchange controls.

If your company were to import and export textiles, the transactions would be recorded in the current account subcategory of:

This dollar-based fixed exchange rate system gave rise to a long period of economic recovery and growing openness of both international trade and capital flows in and out of more and more countries.

Over the last two decades the surplus on U.S. services trade has typically been ________ the deficit on U.S. goods trade.

In 2010 the United States posted a current account deficit of -$471 billion. The bulk of the negative value came from:

This was an era dominated by industrialized nation economies that were dependent on gold convertibility to maintain confidence in the system.

Because current and financial/capital account balances use double-entry bookkeeping it is unusual to find serious discrepancies in the debits and credits.

An era of retrenchment, in which major economic powers returned to policies of isolationism and protectionism, restricting trade and nearly eliminating capital mobility.

A country experiencing a serious trade deficit is not as likely to expand imports as it would be if running a surplus.

The authors identify a tip for understanding BOP accounting. They recommend that you "follow the cash flow."

The two major concerns about foreign direct investment are:

Like a balance sheet, the Balance of Payments adds up the value of all assets and liabilities of a country on a specific date.

In the United States and most developed countries, the current account and the combined financial/capital accounts tend to be inversely related in that when one is positive, the other tends to be negative.

Expenditures by U.S. tourists in foreign countries for foreign goods or services are factored into BOP calculations.