Ch003-Balance-of-Payments

Eun/Resnick4e27Eun&Resnick4eCHAPTER3BalanceofPaymentsBalance-of-PaymentsAccountingBalance-of-PaymentsAccountsTheCurrentAccountTheCapitalAccountStatisticalDiscrepancyOfficialReserveAccountInternationalFinanceinPractice:HowOneWordHauntsDollarTheBalance-of-PaymentsIdentityBalance-of-PaymentsTrendsinMajorCountriesInternationalFinanceinPractice:TheDollarandtheDeficitSummaryMINICASE:Mexico’sBalance-of-PaymentsProblemAppendix3A:TheRelationshipbetweenBalanceofPaymentsandNationalIncomeAccountingBalanceofPaymentsAccounting1Balanceofpaymentsa)isdefinedasthestatisticalrecordofacountry’sinternationaltransactionsoveracertainperiodoftimepresentedintheformofadouble-entrybookkeepingb)providesdetailedinformationconcerningthedemandandsupplyofacountry’scurrencyc)canbeusedtoevaluatetheperformanceofacountryininternationaleconomiccompetitiond)alloftheaboveAnswer:d-p.592IftheUnitedStatesimportsmorethanitexports,thena)Thesupplyofdollarsislikelytoexceedthedemandintheforeignexchangemarket,ceterisparibus.b)OnecaninferthattheU.S.dollarwouldbeunderpressuretodepreciateagainstothercurrenciesc)a)andb)d)NoneoftheaboveAnswer:c-p.593IfJapanexportsmorethanitimports,thena)Thesupplyofdollarsislikelytoexceedthedemandintheforeignexchangemarket,ceterisparibus.b)Onecaninferthattheyenwouldbelikelytoappreciateagainstothercurrenciesc)a)andb)d)NoneoftheaboveAnswer:b-p.59There’snoguaranteethattheU.S.isJapan’sonlytradingpartner.Eun/Resnick4e284Generallyspeaking,anytransactionthatresultsinareceiptfromforeignersa)Willberecordedasadebit,withanegativesign,intheU.S.balanceofpaymentsb)Willberecordedasadebit,withapositivesign,intheU.S.balanceofpaymentsc)Willberecordedasacredit,withanegativesign,intheU.S.balanceofpaymentsd)Willberecordedasacredit,withapositivesign,intheU.S.balanceofpaymentsAnswerd)page60.5Generallyspeaking,anytransactionthatresultsinapaymenttoforeignersa)Willberecordedasadebit,withanegativesign,intheU.S.balanceofpaymentsb)Willberecordedasadebit,withapositivesign,intheU.S.balanceofpaymentsc)Willberecordedasacredit,withanegativesign,intheU.S.balanceofpaymentsd)Willberecordedasacredit,withapositivesign,intheU.S.balanceofpaymentsAnswera)page60.6SupposetheMcDonaldsCorporationimports100tonsofCanadianbeef,payingforitbytransferringthefundstoaNewYorkbankaccountkeptbytheCanadianBeefConglomerate.a)PaymentbyMcDonaldswillberecordedasadebitb)Thedepositofthefundsbythesellerwillberecordedasadebitc)PaymentbyMcDonaldswillberecordedasacreditd)ThedepositofthefundsbythebuyerwillbecreditAnswer:apage60.7Sincethebalanceofpaymentsispresentedasasystemofdouble-entrybookkeeping,a)Everycreditintheaccountisbalancedbyamatchingdebitb)Everydebitintheaccountisbalancedbyamatchingcreditc)a)andb)arebothtrued)NoneoftheaboveAnswerc)page60BalanceofPaymentsAccounts8Acountry’sinternationaltransactionscanbegroupedintothefollowingthreemaintypes:a)currentaccount,mediumtermaccount,andlongtermcapitalaccountb)currentaccount,longtermcapitalaccount,andofficialreserveaccountc)currentaccount,capitalaccount,andofficialreserveaccountd)capitalaccount,officialreserveaccount,tradeaccountAnswer:c-p.609Invisibletraderefersto:a)servicesthatavoidtaxpaymentsb)undergroundeconomyc)legal,consulting,andengineeringservicesEun/Resnick4e29d)touristexpenditures,onlyAnswer:c-p62TheCurrentAccount10Thecurrentaccountisdividedintofourfinercategories:a)Merchandisetrade,services,factorincome,andstatisticaldiscrepance.b)Merchandisetrade,services,factorincome,andunilateraltransfersc)Merchandisetrade,services,portfolioinvestment,andunilateraltransfersd)Merchandisetrade,services,factorincome,anddirectinvestmentAnswer:bpage62.11Factorincomea)Consistslargelyofinterest,dividends,andotherincomeonforeigninvestments.b)Isatheoreticalconstructofthefactorsofproduction,land,labor,capital,andentrepreneurialability.c)Isgenerallyaveryminorpartofnationalincomeaccounting,smallerthanthestatisticaldiscrepancy.d)NoneoftheaboveAnswer:a)page63USETHEFOLLOWINGINFORMATIONTOANSWERTHENEXTTWOQUESTIONSTheentriesinthe“currentaccount”andthe“capitalaccount”,combinedtogether,canbeoutlined(inalphabeticorder)as:(i)-directinvestment(ii)-factorincome(iii)-merchandise(iv)-officialtransfer(v)-othercapital(vi)-portfolioinvestment(vii)-privatetransfer(viii)-services12Currentaccountincludesa)(i),(ii),and(iii)b)(ii),(iii),and(vii)c)(iv),(v),and(vii)d)(i),(v),and(vi)Answer:b-p.6213Capitalaccountincludesa)(i),(ii),and(iii)b)(ii),(iii),and(vii)c)(iv),(v),and(vii)Eun/Resnick4e30d)(i),(v),and(vi)Answer:d-p.6014The“J-curveeffect”shows:a)theinitialdeteriorationandtheeventualimprovementofacountry’stradebalancefollowingacurrencydepreciationb)theinitialimprovementandtheeventualdepreciationofacountry’stradebalancefollowingacurrencydepreciationc)thetradebalance’slackofresponsivenesstotheexchangesratechangesd)noneoftheaboveAnswer:a-pp.6315The“J-curveeffect”a)Happensmostofthetime,intheshortrun.b)Actuallyonlyoccursinabout40percentofthecasesaccordingtoastudybySebastianEdwardsc)Isalong-runphenomenon,notashort-run.d)Noneoftheabove.Answer:bp63.16Adepreciationwillbegintoimprovethetrade