Reference no: EM131148523

Q1. Assume the following represents the sum total of all international transactions for a given year.

1) $100 worth of oil was imported and paid for with a demand deposit.

2) $100 worth of autos were imported and paid for with a demand deposit.

3) $100 worth of wheat was exported and paid for with a demand deposit.

4) $100 in interest payments were made to a foreign bank with a demand deposit.

5) $100 in food aid was given to the rest of the world in the form of a demand deposit.

6) A domestic bank purchased a foreign demand deposit from a foreign bank with a $100 demand deposit.

7) A foreign multinational firm purchased a factory for $100 in the domestic economy for $100 and paid with a demand deposit.

8) $100 worth of long-term Treasury bonds were sold to foreign investors and paid for with a demand deposit.

9) The treasury sold $100 worth of foreign exchange (official reserves) to a foreign central bank for a demand deposit.

Which statement is concerning the above transactions is TRUE?

a) The balance on the official settlements account is -$100.

b) The balance on the long-term capital account is -$200.

c) The balance on net foreign transfers is +$100.

d) The balance on the current account is -$300.

e) The balance on the merchandise trade account is +$100.

Q2. The following is a fictional balance of payments accounts of Surplus Land, which pegs its exchange rate to the dollar and controls the inflow and outflow of its capital.

Merchandise Exports                                     100 billion Yuan

Merchandise Imports                                     -50 billion Yuan

Service Exports                                             5 billion Yuan

Service Imports                                            -20 billion Yuan

Net Foreign Transfers                                    -2 billion Yuan

Net Long-Term Capital                                   20 billion Yuan

Net Short-Term Capital                                  -3 billion Yuan

Net Change in Surplus Land's Reserves           -50 billion Yuan

Which of the following statements concerning Surplus Land's balance of payments is TRUE?

a) The net change in Surplus Land's reserves (-50 billion Yuan) indicates it is accumulating international reserves.

b) The balance on its capital account is $15 billion Yuan.

c) Its net long-term capital balance (+20 billion Yuan) shows it is lending long term to the rest of the world.

d) The balance on its current account is $35 billion Yuan.

e) Its net foreign transfers balance (-2 billion Yuan) shows it is a net receiver of international aid.