Balance of Payments Test - 1

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.

Balance of payments includes all external visible and non-visible transactions of a country.  If a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counterbalanced in other ways – such as by funds earned from its foreign investments, by running down currency reserves or by receiving loans from other countries.

As the price of foreign currency increases it's supply increses and as it's price decreases it's supply decreases, other factors remaining same.

The purchasing power of foreigners increase in terms of the  domestic currency.

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

The difference between the value of goods and services exported out of a country and the value of goods and services imported into the country. The balance of trade is the official term for net exports that makes up the balance of payments. The balance of trade can be a "favorable" surplus (exports exceed imports) or an "unfavorable" deficit (imports exceed exports). The official balance of trade is separated into the balance of merchandise trade for tangible goods and the balance of services.

At lower exchange rate more foreign currency is demanded and at higher exchange rate less foreign currency is demanded.

BOT records only merchandise transactions with rest of the world  whereas BOP records all transactions with rest of the world.

Borrowing and lending is done through capital.

Borrowing and lending is done through capital.