Q.1 Which of the following items is entered on the credit side of BOP account ? (b) Balance of payments. (c) Restricting imports. A deficit in current account always reflects in an increase in net financial claims of foreigners (i.e. There will be a deficit in the balance of payments when the demand for foreign exchange exceeds its supply, and three will be a surplus when the supply of foreign exchange exceeds the demand. For example, an overall BOP deficit can be supported by drawing down the central bank’s reserve holdings. Expenditure-Reducing policies: A deficit in the balance of payments implies an excess of expenditure over income. (c)     Current Account of Balance of Payment. Answer: A country can run an overall BOP deficit or surplus by engaging in the official reserve transactions. Explain how a country can run an overall balance of payments deficit or surplus. Australia has generally had a current account deficit, reflecting attractive investment opportunities in the economy that exceed our capacity to fund via domestic saving. this is your one stop solution. EduRev is like a wikipedia Conversely, they are also the recipients when there is a surplus in the country’s BoP. Measure # 4. (d) Borrowing foreign exchange from an international source.Ans: DQ.9 Who out of the following is not included in “Residents” in BOP transactions ? increase in net capital flows or depletion in foreign exchange reserves). The correct answer is C. To reduce a balance of payments deficit requires a deflationary policy. perfect preparation. A BoP deficit can be corrected through an official reserve sale which denotes the sale of foreign exchange by the Reserve Bank. Countries with deficit bop found their international reserves dwindling which forced them to devalue their currency. Q. These terms are connected with international trade accounting. Since the repayment of these loans is spread over a long period, This helps the government to remove the deficit in the Balance of payments. (a)    To constant the value of home currency. If the current account is in deficit, then the capital account is likely to be in surplus. More importantly, irregular short-term changes in the domestic economic policies with a view to remove the short-term deficits in balance of paymentsmay do more harms than good to the economy. If there was an increase in interest rates this would cause hot money flows to enter the UK, therefore there would be a surplus on the financial account 3. Balance of payment deficit can be removed through: 10. One of the most important advantages of flexible exchange rates is their ability to adjust automatically to excess demand or supply of the domestic currency, thus automatically bringing about a balance in the balance of payments. This is usually accompanied by an increase in consumer credit balances, as such spending is most easily done on credit cards and borrowed money. your solution of MCQs - Balance Of Payment Commerce Notes | EduRev search giving you solved answers for the same. The direct impact of large scale development expenditures is seen in increase the purchasing power, aggregate demand and prices. (d) Organization for economic co-operation & development, 6. This phenomenon is common in developing countries where large scale import of capital goods needed for carrying out various development programmes and it will raisethe deficit in their balance of payments. Adjustment through Capital Movements . Since these changes cause dislocations in the process of reallocation of resources and short-term fluctuations in the econo… A depreciation of the Rand. 6. Do check out the sample questions [AI 2008, CBSE 2013, Sample Paper 2013] Answer: Question 2. A balance of payments deficit means the country imports more goods, services, and capital than it ex[ports. A current account deficit is eliminated through currency depreciation; a surplus is eliminated by currency appreciation. A. You can download Free MCQs - Balance Of Payment Commerce Notes | EduRev pdf from EduRev by (a) Accommodating(b) Autonomous(c) Current account(d) Above the lineAns: AQ.4 When receipts of foreign exchange are less than payments of foreign exchange, then BOP is:(a) Deficit(b) Surplus(c) Balanced(d) None of theseAns: AQ.5 Foreign exchange transaction dependent on other foreign exchange transactions are called : (a) Current account transaction(b) Capital account transaction(c) Autonomous transaction(d) Accommodating transactionAns: DQ.6 Dr. Manjeet Singh is an NRI, settled in Canada. The rise in exports must, therefore, be sufficient to wipe out the deficit X 1 M 1 as well as to 5. 8. current account deficits. Differentiate between Balance of Trade and Current Account Balance. That's correct. (b) Credit entry in current account(c) Debit entry in capital account(d) Debit entry in current accountAns: AQ.7 External deficit of an economy refers to, (a) Fiscal deficit(b) Current account deficit in BOP(c) Revenue deficit, (d) Trade deficitAns: BQ.8 If a country carries a deficit in its current account, such a deficit can be financed by. [3 Marks] Or Distinguish between BOT and Balance on current account. The devaluation has an inflationary potential. A Malaysian company invests in a South African oil company. You can also find MCQs - Balance Of Payment Commerce Notes | EduRev ppt and other Commerce slides as well. Balance of Payment class 12 Notes Economics. 7. (c) Either(d) Neither Ans: BQ.3 Transactions that take place to cover deficit or surplus are called ____ transactions. Download this set of multiple choice questions, designed to review your knowledge of the balance of payments and policies for tackling imbalances.. ADDITIONAL TEACHER GUIDANCE. Home » Economics MCQS » Economics Objective Questions and Answers – Chapter 6 – Balance of Payment. In India which authority takes the purview of import & export: (a)    To reduce the value of home currency in other currency, (b)    To appreciate the value of home currency. This can lead to a decline in living standards and lower confidence for investment. ACTIVITY 7: MCQ QUIZ. The balance of payments is regarded as being in disequilibrium when it shows either a surplus or a deficit. All the transaction details are mentioned in the statement, giving the authority a clear vision of the flow of fund. All the others are reflationary policies. This would be treated as a, (a) Credit entry in capital account. Balance of Payments Adjustment through Capital Movements: (c) Gifts paid to foreigners(d) Repayment of foreign loanAns: AQ.2 Outflow of foreign exchange is recorded on the ____ sides. Complete MCQs - Balance Of Payment Commerce Notes | EduRev chapter (including extra questions, long questions, short questions, mcq) can be found on EduRev, you can check out Commerce lecture & lessons summary in the same course for Commerce Syllabus. Economics Objective Questions and Answers Test contains 10 questions. The balance of payment is a comprehensive and systematic records of all economic transaction between normal residents of a country and rest of the world during an accounting year. NCERT Solutions for Class 12 Macro Economics Chapter-10 Balance of Payment NCERT TEXTBOOK QUESTIONS SOLVED Question 1. EduRev is a knowledge-sharing community that depends on everyone being able to pitch in when they know something. Due to depletion of reserves of gold and foreign cur­rencies, the countries with deficit balance of payments are forced to devalue their currency to over­come the deficit (c) Both (a) and (b)(d) Neither (a) nor (b)Ans: BQ.11 Autonomous transactions take place on : (c) Both Current and Capital accounts(d) NeitherAns: CQ.12 Autonomous items are related to those transactions which : (a) are determined by motive of profit(b) are not concerned with the equilibrium status of BOP(c) both (a) and (b)(d) none of theseAns: CQ.13 Accommodating items are those items of BOP which: (a) are not determined by considerations of profit, (b) are conditioned by the positive or negative BOP status, (c) lead to increase or decrease in official reserves with RBI. (a) Firms(b) Foreign military personnel(c) Government agencies(d) IndividualsAns: BQ.10 “Unilateral Transfers” are also known as : (a) Bilateral Transfers(b) One-way Transfers. It is an important macro-economic indicator that helps a country’s Reserve Bank to gauge the economic trends in the past, and create monetary policies. A very high balance of payments deficit may, at some point, cause a loss of confidence by foreign investors. We hope the same would help in quick understanding and revision. 10. 29 Possible policies a government might use to reduce a deficit on the current account of the balance of payments include devaluation, government spending cuts, interest rate rises and tariffs on imports. (a) To reduce the value of home currency in other currency. Economics Objective Questions and Answers, which are covered in this chapter, relate to the topic, Balance of Payment. This is just for education and the MCQs - Balance Of Payment Commerce Notes | EduRev images and diagram are even better than Byjus! It has gotten 14761 views and also has 4.9 rating. Therefore, there is always a risk, that investors will remove their investments causing a big fall in the value of your currency (devaluation). The three components of the balance of payments are the current account, financial account, and capital account. 9. Consequently, an adverse balance of payment is corrected. (adsbygoogle = window.adsbygoogle || []).push({}); CHECK OUT ALL ECONOMICS MCQS AT OUR ECONOMICS QUESTION CHAPTER-WISE INDEX  : –. Current account B. If you want MCQs - Balance Of Payment Commerce Notes | EduRev (c) Balance … Yes, well done. MCQs - Balance Of Payment Commerce Notes | EduRev notes for Commerce is made by best teachers who have written some of the best books of The U.S. economy’s reliance on consumption and low prices has created a large deficit in the balance of payments. To reduce a balance of payments deficit requires a deflationary policy. 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