Canadian Institute of Technology International Business Finance, Sh. Cani Fall Semester 2020-2021 Quiz no.2 (BoP) Time: 30 minutes 95 points Tirana, January 05.2021 First Name, Last Name Najada Zylyftari I. Multiple-Choice Questions 20 points (2 point each) 1. The balance of payments summarizes the transactions that occur during a given time period between a. the government of one country and the government of another country b. individuals, firms, and government of one country and individuals, firms, and governments throughout the rest of the world c. the national government and local governments in the same country 2. An increase in the current account deficit will place _______ pressure on the home currency value, other things equal. a. upward b. no c. downward or upward (depending on the size of the deficit) d. downward 3. Which of the following would likely have the least direct influence on a country's current account? a. inflation b. national income c. exchange rates d. a tax on income earned from foreign stocks e. tariffs 4. In France’s balance of payments, foreign purchases of assets in France are a: a. foreign currency inflow b. foreign currency outflow. c. current account item. d. debit, or outpayment. 5. The world’s largest net debtor nation is a. Russia b. China c. United States d. Brazil 6. Which of the following is not a reason why a weak home currency is not a perfect solution for correcting BOP problems? a. foreign competitors may retaliate by lowering their prices b. demand of imports and exports is too inelastic c. the home currency may weaken against all currencies at the same time 7. Which of the following combinations is plausible, as it relates to a nation's balance of payments? a. Current account = $ + 40 billion; capital account = $ - 10 billion; financial account = $ - 50 billion. b. Current account = $ + 50 billion; capital account = $ - 20 billion; financial account = $ + 30 billion. c. Current account = $ + 30 billion; capital account = $ - 20 billion; financial account = $ - 10 billion. d. Current account = $ + 10 billion; capital account = $ + 40 billion; financial account = $ + 50 billion. 8. If a nation's goods exports are $55 billion, while its goods imports are $50 billion, we can conclude with certainty that this nation has a: a. positive balance on goods and services. b. balance of payments surplus. c. positive balance on current account. d. balance of trade (goods) surplus. 9. A deficit on the current account: a. means that a nation is making international transfers. b. normally causes a deficit on the capital and financial account. c. has no relationship to the capital and financial account. d. normally causes a surplus on the capital and financial account. 10. Which one of the following, other things equal, will directly alter Japan’s balance of trade? a. an increase in the balance on capital account b. decrease in Japan’s purchases of assets abroad c. an increase in net transfers d. a decrease in Japan’s goods exports II. Short Answer Question 75 points (5 points each) 1. Which are three elements/components of Current Account? Trade in goods and services, investment incomes (or interest rates, remittances) and nert transfers from other countries. 2. Which are four elements/components of Capital Account? Foreign investments, loans, banking and other forms of capital, changes in the exchange reserves. 3. What is Investment Income? money that someone earns from an increase in the value of investments, or from selling an asset with higher price etc. 4. Which are three elements/components of FDI? FDI has three components: equity capital, reinvested earnings and intra-company loans. 5. What is Statistical Discrepancy? Statistical discrepancies are errors that may arise due to the difficulty of accurately counting every transaction between an economy and the rest of the world, including discrepancies caused by foreign currency translations. 6. Which are four Factors Affecting International Trade Flows Inflation, national income, government restrictions, exchange rates 7. Which are five factors affecting FDI? Changes in Restrictions, Privatization, Potential Economic Growth of a country, tax rates, and exchange rates. 8. Which are three factors affecting International Portfolio Investment? Interest rates, tax rates on dividens and interest, exchange rates 9. Which are eight Agencies that Facilitate International Flows? International Monetary Fund (IMF) International Monetary Fund (IMF) Multilateral Investment Guarantee Agency International Development Association World Trade Organization International Financial Corporation Bank for International Settlements Regional development agencies 10. What summarizes the Balance of Payments (BoP)? Statement that summarizes all the transactions made between the entities of a country with the rest of the world, over a defined period of time. 11. What are “Net Unilateral Transfers” Net difference between gifts taken from a country and gifts given to other countries. 12. BOP scenario: CA in deficit, FA in surplus. What does it mean for a developed country? Overconsumption and high imports 13. BOP scenario: CA in deficit, FA in surplus. What does it mean for a developing country? imported a big number of heavy machinery and have been borrowing a lot of money form international sources 14. BOP scenario: CA in surplus, FA in deficit. What does it mean for a developing country? Paying back loans and increasing the level of exports 15. BOP scenario: CA in surplus, FA in deficit. What does it mean for a developed country?
