Reading 19: Foreign Exchange Parity Relations - LOS b ～ current, balance, account, Foreign, class

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1．The current account balance reflects the exchange of:

A)   goods, services, investment income, and unilateral transfers.

B)   merchandise only.

C)   goods and services only.

D)   goods, services, and investment income.

2．Which of the following statements is most accurate for a country with a current account surplus? The current account surplus must be:

A)   exactly offset by a deficit in the financial account.

B)   exactly offset by a deficit in the sum of the financial and official reserve accounts.

C)   exactly offset by a deficit in the official reserve account.

D)   accompanied by surpluses in the financial and official reserve accounts.

3．Under a system of flexible exchange rates, a nation that has a surplus on current account transactions will experience a:

A)   deficit on its financial accounts transactions.

B)   deficit on its balance of payments.

C)   surplus on its balance of payments.

D)   surplus on its financial accounts transactions.

4．If a nation is running a deficit in the current account, the sum of the financial account and the official reserve account must be:

A)   negative.

B)   zero.

C)   in deficit.

D)   positive.

5．In balance of payments accounting, the net inflow of debt and equity investment funds into the country appears in the:

A)   current account.

B)   official reserve account.

C)   financial account.

D)   current account adjusted for capital depreciation.

6．Which of the following statements regarding the balance of payments accounts is most accurate?

A)   Running a deficit in the current account balance means a country imports more than it exports.

B)   The total of the balance of payments accounts does not have to equal zero.

C)   A current account surplus is an indication of economic strength.

D)   A capital account deficit is an indication of economic weakness.

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答案和详解如下：

1．The current account balance reflects the exchange of:

A)   goods, services, investment income, and unilateral transfers.

B)   merchandise only.

C)   goods and services only.

D)   goods, services, and investment income.

The correct answer was A)

The current account balance reflects the exchange of merchandise, services, investment income, and unilateral transfers.

2．Which of the following statements is most accurate for a country with a current account surplus? The current account surplus must be:

A)   exactly offset by a deficit in the financial account.

B)   exactly offset by a deficit in the sum of the financial and official reserve accounts.

C)   exactly offset by a deficit in the official reserve account.

D)   accompanied by surpluses in the financial and official reserve accounts.

The correct answer was B)

By definition: current account + financial account + official reserve account = 0.

3．Under a system of flexible exchange rates, a nation that has a surplus on current account transactions will experience a:

A)   deficit on its financial accounts transactions.

B)   deficit on its balance of payments.

C)   surplus on its balance of payments.

D)   surplus on its financial accounts transactions.

The correct answer was A)

A surplus on current account transactions must be offset by a deficit in its financial accounts in order to have a balance on a nation’s account transactions, a balance of payments.

4．If a nation is running a deficit in the current account, the sum of the financial account and the official reserve account must be:

A)   negative.

B)   zero.

C)   in deficit.

D)   positive.

The correct answer was D)

The balance of payments equation is: Current account balance + financial account balance + official reserve account balance = 0. If the current account balance is in deficit, the others must be positive for the sum of these balances to be zero.

5．In balance of payments accounting, the net inflow of debt and equity investment funds into the country appears in the:

A)   current account.

B)   official reserve account.

C)   financial account.

D)   current account adjusted for capital depreciation.

The correct answer was C)

The financial account measures the flow of debt and equity investment funds into and out of the country.

6．Which of the following statements regarding the balance of payments accounts is most accurate?

A)   Running a deficit in the current account balance means a country imports more than it exports.

B)   The total of the balance of payments accounts does not have to equal zero.

C)   A current account surplus is an indication of economic strength.

D)   A capital account deficit is an indication of economic weakness.

The correct answer was A)

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.