Q.1 What does a Balance of Payments disequilibrium indicate?
Equality between imports and exports
Mismatch in international payments and receipts
Stable foreign exchange reserves
Government budget surplus
Explanation - Balance of Payments disequilibrium occurs when a country’s international payments exceed its receipts or vice versa, leading to imbalances in foreign exchange.
Correct answer is: Mismatch in international payments and receipts
Q.2 Which of the following is a cause of Balance of Payments disequilibrium?
Excessive imports
Higher domestic savings
Balanced trade policies
Equal capital inflows and outflows
Explanation - When imports rise disproportionately compared to exports, it creates a current account deficit, leading to disequilibrium in BOP.
Correct answer is: Excessive imports
Q.3 A persistent current account deficit usually leads to:
Foreign exchange inflows
Accumulation of reserves
Depletion of foreign reserves
Higher export competitiveness
Explanation - To finance a deficit, countries use their foreign exchange reserves, leading to their depletion if the imbalance persists.
Correct answer is: Depletion of foreign reserves
Q.4 Which type of disequilibrium arises due to capital flight?
Current account disequilibrium
Capital account disequilibrium
Monetary disequilibrium
Trade disequilibrium
Explanation - Capital flight leads to imbalances in the capital account, as outflows exceed inflows, causing disequilibrium.
Correct answer is: Capital account disequilibrium
Q.5 Which of the following can reduce Balance of Payments disequilibrium?
Encouraging exports
Increasing imports
Reducing savings
Higher foreign travel spending
Explanation - Promoting exports increases foreign exchange earnings, which helps reduce disequilibrium in the Balance of Payments.
Correct answer is: Encouraging exports
Q.6 A balance of payments surplus typically results in:
Depreciation of domestic currency
Accumulation of foreign reserves
Reduction of exports
Foreign capital outflow
Explanation - When receipts exceed payments, the country accumulates foreign reserves, strengthening its external position.
Correct answer is: Accumulation of foreign reserves
Q.7 Which type of disequilibrium arises due to inflation in the domestic economy?
Trade disequilibrium
Balance of payments disequilibrium
Monetary disequilibrium
Both A and B
Explanation - Inflation makes exports less competitive and imports more attractive, causing trade and BOP disequilibrium.
Correct answer is: Both A and B
Q.8 What role does exchange rate play in BOP disequilibrium?
It has no impact
It balances imports and exports automatically
It influences trade competitiveness
It only affects capital inflows
Explanation - Exchange rate affects the price of exports and imports, directly impacting the balance of trade and overall BOP.
Correct answer is: It influences trade competitiveness
Q.9 When a country continuously imports more than it exports, it faces:
Trade surplus
Trade deficit
Capital account surplus
Budget surplus
Explanation - Excessive imports compared to exports lead to a trade deficit, which contributes to BOP disequilibrium.
Correct answer is: Trade deficit
Q.10 Which of the following is NOT a type of disequilibrium in BOP?
Trade disequilibrium
Capital disequilibrium
Monetary disequilibrium
Fiscal disequilibrium
Explanation - Fiscal disequilibrium relates to government budgets, not directly to Balance of Payments.
Correct answer is: Fiscal disequilibrium
Q.11 Which international institution often provides loans to correct BOP disequilibrium?
World Trade Organization
International Monetary Fund
World Bank
United Nations
Explanation - The IMF provides short-term financial assistance to countries facing balance of payments difficulties.
Correct answer is: International Monetary Fund
Q.12 A deficit in the capital account means:
More capital inflows than outflows
More capital outflows than inflows
Balanced capital movements
Increased exports
Explanation - A capital account deficit reflects higher outflow of investments compared to inflows, creating disequilibrium.
Correct answer is: More capital outflows than inflows
Q.13 Devaluation of currency is used to correct BOP disequilibrium because:
It raises export prices
It lowers import prices
It makes exports cheaper and imports costlier
It increases foreign reserves directly
Explanation - Currency devaluation encourages exports and discourages imports, helping to restore BOP balance.
Correct answer is: It makes exports cheaper and imports costlier
Q.14 Which factor may lead to structural disequilibrium in BOP?
Seasonal demand changes
Sudden policy shifts
Underdeveloped industrial base
Short-term trade shocks
Explanation - When a country cannot diversify exports due to weak industries, it faces structural disequilibrium in BOP.
Correct answer is: Underdeveloped industrial base
Q.15 Balance of Payments includes which two main accounts?
Revenue and Capital
Current and Capital
Trade and Fiscal
Monetary and Fiscal
Explanation - The BOP is broadly divided into the current account (goods, services, transfers) and the capital account (capital flows).
Correct answer is: Current and Capital
Q.16 Which disequilibrium is caused by a sudden increase in foreign debt repayments?
Capital account disequilibrium
Trade disequilibrium
Monetary disequilibrium
Fiscal disequilibrium
Explanation - High debt repayments increase outflows under the capital account, leading to disequilibrium.
Correct answer is: Capital account disequilibrium
Q.17 Which of the following is an effect of BOP disequilibrium?
Foreign reserve stability
Stable exchange rates
Currency depreciation
Improved trade balance
Explanation - Persistent deficits in BOP cause pressure on the domestic currency, leading to depreciation.
Correct answer is: Currency depreciation
Q.18 A BOP surplus may indicate:
Overdependence on imports
Strong export performance
Rising trade deficit
Weak capital inflows
Explanation - A surplus often results from higher export earnings or strong capital inflows, strengthening the economy.
Correct answer is: Strong export performance
Q.19 Which policy is often adopted to correct persistent BOP deficit?
Import liberalization
Export promotion
Increase in luxury imports
Capital outflow encouragement
Explanation - Encouraging exports enhances foreign exchange inflows, reducing BOP deficit.
Correct answer is: Export promotion
Q.20 When invisible items like tourism and remittances decline, it leads to:
Fiscal deficit
Invisible trade deficit
Capital account surplus
Balanced current account
Explanation - Decline in earnings from invisible items (services, remittances) creates deficits in the current account.
Correct answer is: Invisible trade deficit
Q.21 Which of the following is a monetary measure to correct BOP disequilibrium?
Devaluation of currency
Export subsidies
Raising interest rates
Import quotas
Explanation - Higher interest rates attract foreign capital inflows, improving the balance of payments.
Correct answer is: Raising interest rates
Q.22 Which of the following is a non-monetary measure to correct BOP disequilibrium?
Import duties
Interest rate hikes
Foreign loans
Exchange rate appreciation
Explanation - Non-monetary measures include tariffs, quotas, and export promotion to reduce BOP deficits.
Correct answer is: Import duties
Q.23 What happens when a country faces persistent BOP deficit?
Strengthens currency value
Builds forex reserves
Needs external assistance
Export competitiveness decreases
Explanation - Persistent deficits force countries to seek help from international institutions like the IMF.
Correct answer is: Needs external assistance
Q.24 Which disequilibrium occurs when foreign capital inflows suddenly stop?
Monetary disequilibrium
Capital account disequilibrium
Trade disequilibrium
Structural disequilibrium
Explanation - A sudden halt in capital inflows creates a capital account deficit, causing disequilibrium in BOP.
Correct answer is: Capital account disequilibrium
Q.25 If exports and imports are equal but the BOP is still in deficit, what may be the reason?
High foreign aid inflows
High invisible payments
Increased remittances
Foreign exchange reserves rising
Explanation - Even with balanced visible trade, high payments for services, interest, or remittances may cause BOP deficits.
Correct answer is: High invisible payments