The Balance of Payments (BoP) is a systematic record of all economic transactions between residents of a country and the rest of the world during a given period
The Balance of Payments ensures that debits (payments made to other countries) equal credits
A positive trade balance indicates a trade surplus
True
Arrange the components of the financial account in order of their typical contribution to the overall balance
1️⃣ Foreign Direct Investment
2️⃣ Portfolio Investment
3️⃣ Other Investments
The trade balance in the current account measures the difference between a country's exports and its imports
A positive trade balance indicates a trade deficit.
False
Match the financial account component with its example:
Foreign Direct Investment (FDI) ↔️ Building a factory abroad
Portfolio Investment ↔️ Purchasing foreign stocks
Other Investments ↔️ Loans to foreign governments
Foreign Direct Investment (FDI) is a component of the financial account in the Balance of Payments
True
Match the account with its key components:
Current Account ↔️ Trade Balance, Net Primary Income
Financial Account ↔️ Foreign Direct Investment, Portfolio Investment
The Balance of Payments reflects a nation's financial standing and engagement in international trade within an open economy
What is the key component of the trade balance in the current account?
Exports and imports of goods
The current account records the flow of goods, services, income, and current transfers
Arrange the financial account components in order of their impact on capital flows:
1️⃣ Foreign Direct Investment (FDI)
2️⃣ Portfolio Investment
3️⃣ Other Investments
The Balance of Payments ensures that debits equal credits.
True
How is the trade balance calculated?
Exports - Imports
What is the fundamental equation of the Balance of Payments?
Current Account + Financial Account = 0
A current account surplus must be matched by a financial account deficit
True
Outward portfolio investment leads to a capital account deficit
Governments and central banks use BoP data to inform economic and monetary policies
What does the current account in the Balance of Payments record?
Flow of goods and services
Arrange the components of the current account from largest to smallest based on their impact on the balance
1️⃣ Trade Balance
2️⃣ Net Primary Income
3️⃣ Net Secondary Income
What is the net primary income in the current account?
Income from investments abroad
Portfolio investment includes the purchase of stocks and bonds
True
A negative trade balance indicates a trade surplus
False
Match the current account component with its description:
Trade Balance ↔️ Difference between exports and imports
Net Primary Income ↔️ Income from foreign investments
Net Secondary Income ↔️ Unilateral transfers like aid
The Balance of Payments comprises two main accounts: the current account and the financial account
Arrange the current account components in the order of their primary impact on a country's trade balance:
1️⃣ Trade Balance
2️⃣ Net Primary Income
3️⃣ Net Secondary Income
A current account surplus must be matched by a financial account deficit.
True
The fundamental BoP identity states that the current account balance plus the capital/financial account balance equals zero
What is the impact of inward FDI on the capital account?
Surplus
What does the Balance of Payments measure regarding economic openness?
Integration with the global economy
The Balance of Payments consists of the current account and the financial account, both of which are crucial for understanding a country's economic interactions with the world.
The financial account includes Foreign Direct Investment, Portfolio Investment, and Other Investments
What must a current account deficit be matched by in the Balance of Payments?
Financial account surplus
Match the factor with its impact on the current account and the capital/financial account:
1️⃣ Trade Balance
2️⃣ Net Primary Income
3️⃣ Net Secondary Income
4️⃣ Foreign Direct Investment
5️⃣ Portfolio Investment
6️⃣ Other Investments
The current account and capital/financial account in the BoP always balance each other out
True
The Balance of Payments is a crucial tool for policymakers and analysts