4.7.3 Balance of Payments

• What is the Balance of Payments (BoP)?

  Summary of economic transactions
• What does the Capital Account cover in the Balance of Payments?

  Transfers of capital ownership
• A balancing item is added to the Balance of Payments to ensure total credits equal total debits.


  True
• What does the Current Account reflect in the Balance of Payments?

  Trade balance and net income
• Order the components of the Current Account:

  1️⃣ Trade Balance

  2️⃣ Income Balance

  3️⃣ Current Transfers
• What does the Income Balance in the Current Account measure?

  Net income from abroad
• The Trade Balance reflects a country's competitiveness in international markets.


  True
• What is added to the Balance of Payments to ensure that total credits equal total debits?

  Balancing item
• Match the Balance of Payments account with its contents:

  Current Account ↔️ Records trade in goods, services, income, and current transfers

  Capital Account ↔️ Covers transfers of capital ownership

  Financial Account ↔️ Includes investments by residents abroad and foreigners
• What does the Trade Balance measure in the Current Account?

  Exports minus imports
• Current transfers in the Current Account include foreign aid and remittances.


  True
• Cross-border investments in stocks and bonds, where the investor does not have a controlling stake, are classified as Portfolio Investment
• A Current Account surplus tends to appreciate a country's currency.


  True
• A Current Account deficit can lead to currency depreciation
• The Current Account affects a country's trade balance and competitiveness.

  True
• What does the Current Account record in the Balance of Payments?

  Trade, income, and transfers
• The Income Balance reflects earnings from foreign investments and labor.


  True
• Direct Investment involves establishing a lasting interest in or control over an enterprise.
• What is the key difference between Direct and Portfolio Investment?

  Control versus no control
• A Current Account surplus increases the demand for a country's currency.


  True
• Inflows of foreign capital may strengthen a country's currency.
• A Balance of Payments surplus can lead to export-led growth.

  True
• What is the impact of currency devaluation on exports?

  Exports become cheaper
• The Current Account records trade in goods, services, income, and current transfers
• The Financial Account includes investments made by residents abroad and by foreigners
• Match the Balance of Payments account with its contents:

  Current Account ↔️ Goods, services, income, transfers

  Capital Account ↔️ Transfers of capital ownership

  Financial Account ↔️ Investments by residents and foreigners

  Balancing Item ↔️ Ensures credit equals debit
• The Financial Account is part of the Balance of Payments.


  True
• The Trade Balance measures the difference between a country's exports and imports
• Current Transfers in the Current Account include foreign aid, remittances, and other one-way payments
• What is the Trade Balance calculated as in the Current Account?

  Exports minus imports
• The Balance of Payments (BoP) is a comprehensive record of all economic transactions between a country and the rest of the world over a specific time period, typically a year
• The Current Account reflects a country's trade balance and net income from abroad.


  True
• The Income Balance in the Current Account includes profits, wages, and dividends
• What is Foreign Direct Investment (FDI) classified under in the Balance of Payments?

  Direct Investment
• Match the Capital Account component with its description:

  Direct Investment ↔️ Establishes lasting interest in an enterprise

  Portfolio Investment ↔️ Investments in financial assets without control

  Financial Flows ↔️ Movements of loans, currency, and other instruments
• What happens to a country's currency when capital outflows occur?

  Depreciates
• Which account in the Balance of Payments records trade in goods, services, and income?

  Current Account
• The Capital Account influences a country's assets and liabilities
• The Trade Balance is the difference between a country's exports and imports of goods and services.
• What is included in Current Transfers within the Current Account?

  Foreign aid and remittances