Chapter 3

Question 1

measurement of all international economic transactions between the residents of a country and foreign residents in a specified period of time

Answer 1

Balance of payments

Question 2

records foreign exchange earned

Answer 2

Credit

Question 3

records foreign exchange spent, such as payments for imports or purchases of services

Answer 3

Debit

Question 4

3 major sub-accounts

Answer 4

• Current account
• Capital account
• Financial account

Question 5

tracks government currency transactions

Answer 5

Official reserves account

Question 6

Produced to preserve the balance of the BOP

Answer 6

Net errors and omissions account

Question 7

When supplemented with the errors and omissions account, the BOP must _______

Answer 7

balance

Question 8

3 Major Accounts

Answer 8

• Current account
• Capital account
• Official Reserves Account

Question 9

includes all international economic transactions with income or payment flows occurring within one year

Answer 9

Current Account

Question 10

What are the 4 components of the financial account?

Answer 10

• direct investment
• portfolio investment
• net financial derivatives
• other asset investment

Question 11

record international borrowing and lending or net foreign investment

Answer 11

The Capital and Financial Accounts

Question 12

The net balance of capital that flows in and out of the United States but does not reach the ___% ownership threshold of direct investment.

Answer 12

10

Question 13

Portfolio investment is motivated by a search for what on the investment?

Answer 13

Returns rather than to control or mange

Question 14

ensures that the BOP balances

Answer 14

Net Errors and Omissions

Question 15

the total reserves held by official monetary authorities within the country

Answer 15

Official Reserves Account

Question 16

A country’s balance of payments both impacts and is impacted by the three macroeconomic rates of international finance:

Answer 16

• exchange rates
• interest rates
• inflation rates

Question 17

What could potentially help to lower a country’s inflation rate

Answer 17

Imports

Question 18

Advantages of imports

Answer 18

Foreign competition substitutes for domestic competition to maintain a lower rate of inflation

Question 19

Disadvantage of imports

Answer 19

Lower gross domestic product (GDP) and more negative current account balance