Session 4: Economics for Valuation Reading 19: Foreign Exchange Parity Relations
LOS b: Explain the role of each component of the balance of payments accounts.
Which of the following statements regarding the balance of payments accounts is most accurate?
A) |
The total of the balance of payments accounts does not have to equal zero. | |
B) |
A current account surplus is an indication of economic strength. | |
C) |
Running a deficit in the current account balance means a country imports more than it exports. | |
The balance of payments (BOP) equation is:
Current Account + Capital Account + Official Reserve Account = 0
The current account measures the exchange of merchandise goods, services, investment income, and unilateral transfers (gifts to and from other nations) between nations. The BOP equation must equal zero and a surplus or deficit in any account does not indicate an economic strength or weakness.
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