The Balance of Payments (BOP) is a record of:
A) Government revenue and expenditure
B) All economic transactions between a country and the rest of the world
C) Only imports and exports
D) Domestic trade activities
Which of the following is a component of the BOP?
A) Current Account
B) Capital Account
C) Financial Account
D) All of the above
A trade surplus occurs when:
A) Imports exceed exports
B) Exports exceed imports
C) The budget deficit increases
D) The central bank prints more money
Which of the following is NOT part of the current account?
A) Goods trade
B) Services trade
C) Foreign direct investment (FDI)
D) Transfers and remittances
The financial account in the BOP records:
A) Foreign direct investment (FDI)
B) Portfolio investments
C) Reserve assets
D) All of the above
A deficit in the BOP means:
A) The country is exporting more than it imports
B) The country is importing more than it exports
C) There is no international trade
D) The exchange rate remains stable
Which of the following factors can influence exchange rates?
A) Inflation rate
B) Interest rate
C) Political stability
D) All of the above
A floating exchange rate is determined by:
A) Government intervention
B) Supply and demand in the foreign exchange market
C) A fixed peg to another currency
D) The central bank setting the rate
What happens when a country’s currency appreciates?
A) Exports become cheaper
B) Imports become more expensive
C) Exports become more expensive
D) Trade deficit decreases
A devaluation of a currency means:
A) An increase in its value relative to other currencies
B) A decrease in its value relative to other currencies
C) No change in its value
D) Government fixing the exchange rate
A fixed exchange rate system means:
A) Exchange rates fluctuate freely
B) The government maintains the currency value at a certain level
C) The value of currency is determined by market forces
D) Interest rates have no effect on currency value
Which of the following is a tool to correct a balance of payments deficit?
A) Increasing exports
B) Increasing interest rates
C) Imposing tariffs on imports
D) All of the above
The Purchasing Power Parity (PPP) theory states that:
A) Exchange rates should be determined by government policies
B) A country’s currency should have the same purchasing power globally
C) Imports always equal exports
D) Countries with high inflation should have stronger currencies
A country with a high trade deficit will likely experience:
A) Currency depreciation
B) Currency appreciation
C) Lower inflation
D) Budget surplus
Which of the following is NOT a cause of currency depreciation?
A) High inflation
B) Low interest rates
C) Increased demand for the currency
D) Political instability
What is a key benefit of a floating exchange rate?
A) It reduces exchange rate volatility
B) It allows for automatic adjustment to economic conditions
C) It ensures stable prices
D) It is controlled entirely by the government
Which of the following institutions helps stabilize exchange rates?
A) IMF
B) WHO
C) WTO
D) UNESCO
An increase in interest rates usually leads to:
A) Currency depreciation
B) Currency appreciation
C) Increased imports
D) Lower investment inflows
Which factor does NOT directly affect exchange rates?
A) Trade balance
B) Government elections
C) Inflation
D) Foreign investment inflows
A trade deficit can be reduced by:
A) Increasing imports
B) Reducing exports
C) Devaluing the currency
D) Lowering interest rates
Which type of exchange rate system is commonly used worldwide?
A) Fixed
B) Pegged
C) Floating
D) Barter
Which of the following improves the balance of payments?
A) Higher interest rates attracting foreign investment
B) Higher inflation
C) Increased imports
D) Lower foreign currency reserves
A country with a strong currency will likely:
A) Increase exports
B) Increase imports
C) Reduce the trade surplus
D) Increase inflation
Which of the following can lead to a BOP crisis?
A) Large current account deficit
B) Foreign exchange reserves increase
C) Surplus in trade balance
D) High foreign direct investment inflows
A speculative attack on a currency can result in:
A) Currency appreciation
B) Sudden currency depreciation
C) Increased trade surplus
D) Higher GDP growth
Which factor can improve exchange rate stability?
A) High inflation
B) Political stability
C) Trade deficit
D) Low foreign reserves
A strong currency benefits:
A) Importers
B) Exporters
C) Domestic manufacturers
D) Inflation control
A managed exchange rate system involves:
A) No government intervention
B) The central bank occasionally influencing exchange rates
C) A currency peg to gold
D) A barter system
