Balance of Payments Test - 12

Real exchange rate says how much of goods in domestic country can be exchanged for goods in foreign country. Nominal exchange rate cannot tell us that.

A trade surplus is an economic measure of a positive balance of trade, where a country's exports exceed its imports. A trade surplus represents a net inflow of domestic currency from foreign markets. trade surplus helps to strengthen a country’s currency; however, this is dependent on the proportion of goods and services of a country in comparison to other countries as well as other market factors. Countries can also highly control their currency through foreign investment efforts.

‘Make in India’ will increase the balance of Credit side of BoP.

When price of a foreign currency rises, domestic goods become relatively cheaper. It induces the foreign country to increase their imports from the domestic country.

 All transactions relating to borrowings from abroad by private sector, government, etc. Receipts of such loans and repayment of loans by foreigners are recorded on the positive (credit) side.

All transactions of lending to abroad by private sector and government. Lending abroad and repayment of loans to abroad is recorded as negative or debit item.

Capital account of BOP records all those transactions, between the residents of a country and the rest of the world, which cause a change in the assets or liabilities of the residents of the country or its government. It is related to claims and liabilities of financial nature.

Current transfers include various types of transactions such as workers' remittances, payments of current taxes on income and wealth, and general government transfers. However, the acquisition/disposal of fixed assets falls under capital transfers, not current transfers.

Current account of balance of payment is trade balance & trade balance includes exports and imports of goods and services.

Managed flow regeime is the current international finance environment in which exchange rates fluctuate from day to day, but central banks attempt to influence their countries' exchange rates by buying and selling currencies. It is also known as a dirty flow.

In an increasingly integrated world economy, the currency rates impact any given country's economy through the trade balance. In this aspect, almost all currencies are managed since central bank or government intervene to influence the value of their currencies.

Capital account of BoP records the financial transactions of a country in foreign exchange with the rest of the world that changes assets and liabilities status of a country. It includes three transactions. 1) Investments from and to abroad, 2) Borrowings and lendings from and to abroad, 3) Changes in foreign exchange reserves.

Balance of payment account is a systematic record of all economic transactions between residents of home country and residents of foreign countries during a given point of time.