#2 IF - Balance of Payment
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Business
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University
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Hard
Mohd Yaacob
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6 Slides • 9 Questions
1
#2 IF - Balance of Payment
2
Multiple Choice
What is BOP?
statement of all transactions made between one country and the rest of the world
statement of all transactions made between one country and the rest of the world over a defined period of time
the amount still owed by an exporting firm after making an initial down payment.
the amount still owed by governments to the International Monetary Fund.
3
Multiple Select
Fundamentals of B O P Accounting
credit - inflow of foreign exchange to the country
debit - outflow of foreign exchange to the country
B O P must balance
B O P can be unbalance
4
Multiple Select
Which of the following is a major subaccount of the Balance of Payments? (you can tick more than one)
the financial account
the accounts payable
the capital account
the current account
5
Current Account includes all international economic transactions with income or payment flows occurring within one year, the current period. It consists of the following four subcategories:
Goods trade and import of goods
Services trade
Income
Current transfers
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The Capital Accounts
The capital account is made up of transfers of financial assets and the acquisition and disposal of nonproduced/nonfinancial assets
7
The Financial Account
The financial account consists of four components—direct investment, portfolio investment, net financial derivatives, and other asset investment.
8
Net Errors and Omissions and Official Reserves Accounts
• The Net Errors and Omissions account ensures that the B O P actually balances.
• The Official Reserves Account is the total reserves held by official monetary authorities within the country.
• These reserves are normally composed of the major currencies used in international trade and financial transactions (hard currencies).
9
Multiple Choice
Which of the following international transactions would NOT be counted as a balance of payments (BOP) transaction?
The Malaysian subsidiary of a British firm pays profits (dividends) back to its parent firm in London.
An international student purchases food in UKM
A Malaysian investor purchases a Japan corporate bond through an investment broker in Tokyo.
All of the above are considered BOP transactions.
10
Multiple Choice
Which of the following is NOT part of the Financial Account of the BOP?
net foreign direct investment
net import/export of services
net portfolio investment
other Financial items
11
Multiple Select
B O P Impacts on Key Macroeconomic Rates
exchange rates
unemployment rate
interest rates
inflation rates
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Equation for the BOP
BOP = (X-M) + (CI-CO) + (FI-FO) + FXB
(X-M) = Current Account Balance
(CI-CO) = Capital Account Balance
(FI-FO) = Financial Account Balance
(I-S) = Investment-Saving Balance
FXB = Reserve Balance
BOP = balance of payments
GDP = gross domestic product
C = consumption
I = capital investment spending
G = government spending
13
Multiple Choice
________ is the cross-border purchase of assets that are then managed in a way that hides the movement of money and its ownership.
Irrational exuberance
Capital flight
Capital mobility
Money laundering
14
Multiple Choice
The Dutch Disease problem arises when a country has such a strong commodity export that it _________________ the value of that country’s real exchange rate.
stagnates
deflates
raises
lowers
15
Multiple Select
Tick correct answer(s) about Capital flight.
large-scale shift in investor preferences
country-specific event
strongly positive effect on the economy
macroeconomic development
#2 IF - Balance of Payment
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