Q.1 What does the Balance of Trade (BoT) measure?
Difference between a country's imports and exports of goods
Difference between a country's imports and exports of services
Total value of a country's imports
Total value of a country's exports
Explanation - The Balance of Trade measures the net difference between a country's exports and imports of tangible goods only, not services.
Correct answer is: Difference between a country's imports and exports of goods
Q.2 If a country's exports exceed its imports, it is said to have a:
Trade surplus
Trade deficit
Balanced trade
Current account deficit
Explanation - A trade surplus occurs when the value of exports of goods exceeds the value of imports.
Correct answer is: Trade surplus
Q.3 Which of the following is included in the current account of the Balance of Payments?
Exports and imports of goods and services
Capital inflows
Loans from foreign banks
Foreign direct investment
Explanation - The current account records transactions in goods, services, income, and current transfers.
Correct answer is: Exports and imports of goods and services
Q.4 A deficit in the Balance of Payments can lead to:
Depreciation of the national currency
Appreciation of the national currency
Higher trade surplus
Lower imports
Explanation - A BOP deficit implies more payments abroad than receipts, which often causes the domestic currency to depreciate.
Correct answer is: Depreciation of the national currency
Q.5 Which account in the Balance of Payments includes foreign direct investment?
Capital account
Current account
Trade account
Monetary account
Explanation - The capital account records transactions related to foreign investments, loans, and other capital transfers.
Correct answer is: Capital account
Q.6 A trade deficit occurs when:
Imports are greater than exports
Exports are greater than imports
Capital inflows exceed outflows
Foreign aid exceeds foreign investment
Explanation - A trade deficit arises when a country imports more goods than it exports.
Correct answer is: Imports are greater than exports
Q.7 Which of the following is NOT a part of the Balance of Payments?
Current account
Capital account
Monetary account
Financial account
Explanation - The standard components of the BOP are the current account, capital account, and financial account; there is no separate monetary account.
Correct answer is: Monetary account
Q.8 Which transaction would appear in the current account?
Export of machinery
Purchase of foreign shares
Borrowing from a foreign bank
FDI in domestic industry
Explanation - The current account records trade in goods and services, including exports like machinery.
Correct answer is: Export of machinery
Q.9 A country with persistent Balance of Payments deficits may need to:
Borrow from other countries or use reserves
Increase exports only
Reduce domestic production
Ignore currency fluctuations
Explanation - To finance BOP deficits, countries may borrow internationally or use foreign currency reserves.
Correct answer is: Borrow from other countries or use reserves
Q.10 Which of these affects the Balance of Trade?
Exchange rates
Domestic savings rate
Government subsidies
All of the above
Explanation - Exchange rates, domestic savings, and government policies all influence a country's trade balance.
Correct answer is: All of the above
Q.11 A country exporting more than it imports will experience:
Current account surplus
Current account deficit
Capital account deficit
Trade equilibrium
Explanation - When exports exceed imports, the current account shows a surplus as more money flows into the country.
Correct answer is: Current account surplus
Q.12 Which of the following is a credit item in the current account?
Imports of goods
Exports of services
Foreign aid paid
Domestic investment abroad
Explanation - Exports are credits because they bring money into the country.
Correct answer is: Exports of services
Q.13 What is a primary goal of monitoring the Balance of Payments?
Ensuring economic stability
Maximizing imports
Reducing domestic savings
Increasing government spending
Explanation - Monitoring the BOP helps maintain exchange rate stability and overall economic balance.
Correct answer is: Ensuring economic stability
Q.14 Which of the following would improve a country's trade balance?
Increase in exports
Decrease in imports
Both A and B
Increase in domestic consumption of imports
Explanation - The trade balance improves when exports increase or imports decrease.
Correct answer is: Both A and B
Q.15 A deficit in the current account means:
The country imports more than it exports
The country exports more than it imports
Capital inflows exceed outflows
There is no net trade
Explanation - Current account deficit occurs when total imports and payments exceed exports and receipts.
Correct answer is: The country imports more than it exports
Q.16 Which of these is a debit item in the Balance of Payments?
Imports of goods
Exports of services
Loans received from abroad
FDI inflows
Explanation - Debits are payments going out of the country; imports of goods represent such payments.
Correct answer is: Imports of goods
Q.17 A sudden large inflow of foreign capital may lead to:
Appreciation of the domestic currency
Depreciation of the domestic currency
Trade deficit
Current account deficit
Explanation - Capital inflows increase demand for the domestic currency, causing appreciation.
Correct answer is: Appreciation of the domestic currency
Q.18 Which is a common cause of trade deficit?
High domestic consumption of imported goods
Low domestic production capacity
High exchange rate making imports cheaper
All of the above
Explanation - Trade deficits can arise due to high imports, low production, and favorable exchange rates for foreign goods.
Correct answer is: All of the above
Q.19 In Balance of Payments accounting, 'errors and omissions' refers to:
Unrecorded transactions
Illegal trade only
Government subsidies
Foreign investment
Explanation - Errors and omissions are adjustments for unrecorded or misreported transactions to balance the BOP accounts.
Correct answer is: Unrecorded transactions
Q.20 Which of the following is true about a current account surplus?
Exports > Imports
Imports > Exports
Capital inflows exceed outflows
None of the above
Explanation - A current account surplus occurs when the value of exports exceeds imports.
Correct answer is: Exports > Imports
Q.21 Which of the following is a part of the capital account?
Debt forgiveness
Exports of goods
Remittances
Tourism receipts
Explanation - Capital account records capital transfers such as debt forgiveness and sale of fixed assets.
Correct answer is: Debt forgiveness
Q.22 Which of the following policies can correct a trade deficit?
Devaluation of the currency
Subsidizing exports
Imposing tariffs on imports
All of the above
Explanation - A trade deficit can be corrected through currency devaluation, export subsidies, and import restrictions.
Correct answer is: All of the above
Q.23 Which of the following is a component of the financial account in BOP?
Portfolio investment
Exports of services
Imports of goods
Remittances
Explanation - The financial account includes portfolio investment, FDI, and other capital movements.
Correct answer is: Portfolio investment
Q.24 Persistent BOP surpluses may lead to:
Appreciation of domestic currency
Depreciation of domestic currency
Trade deficits
Reduced foreign reserves
Explanation - A BOP surplus increases demand for the domestic currency, causing it to appreciate.
Correct answer is: Appreciation of domestic currency
Q.25 Which of the following would worsen the trade balance?
Increase in imports
Decrease in exports
Both A and B
Increase in domestic production
Explanation - The trade balance worsens if imports rise or exports fall.
Correct answer is: Both A and B