CHAPTER -17-BALANCE OF PAYMENTS ACCOUNT

MULTIPLE CHOICE QUESTIONS

BOP is measured as:

1 (a) difference between visible items of exports and imports
(b) difference between invisible items of exports and imports
(c) difference between external and internal flow of gold
(d) difference between all receipts of foreign exchange and payments of foreign
exchange
Balance of Trade is measured as:
2 (a) difference between import and export of goods
(b) difference between import and export of services
(c) difference between import and export of capital
(d) difference between all exports and all imports
In which of the following categories are the transactions of balance of trade recorded?
3 (a) Visible items
(b) Invisible items
(c) Capital transfers
(d) All of these
Current account records transactions relating to:
4 (a) export and import of goods
(b) non-factor and factor income
(c) current transfers
(d) all of these
Invisibles balance refers to:
5 (a) Exports - Imports
(b) Trade balance + Balance of non-factor services
(c) Balance of non-factor services + Balance of transfer
(d) Exports - Imports + Balance of factor services

When balance of payments balances:

6 (a) current account + capital account = zero
(b) official reserves account is a part of current account
(c) official reserves account is a part of capital account
(d) both (a) and (c)

Exports = Rs 1,000 lakh, imports = Rs 1,650 lakh, balance of trade shows:

7 (a) surplus of Rs 650 lakh
(b) deficit of Rs 650 lakh
(c) balance of Rs 2,650 lakh
(d) none of these

If balance of trade is (-) Rs 600 crore and value of exports is Rs 500 crore, then the
8 value of imports

1|Page 8 October 2021,ZIET BHUBANESWAR

 will be:
(a) Rs 1,300 crore
(b) Rs 300 crore
(c) Rs 1,100 crore
(d) Rs 1,200 crore

Accommodating items are those items of BoP which:

9 (a) are not determined by considerations of profit
(b) are conditioned by the positive or negative BoP status
(c) lead to increase or decrease in official reserves with RBI
(d) all of these
Balance of trade is a ......... concept as compared to balance of payments.
10 (a) narrower
(b) broader
(c) similar
(d) None of the above
A deficit in ....... can be covered by a surplus in…….., while the reverse cannot be
11 done.
(a) BOP. BOT
(b) BOT. BOP
(c) current account, capital account
(d) capital account, current account

Current account records all payments to rest of the world as ......... and all receipts
12 from rest of the world as _______
(a) Credit, debit
(b) Debit, credit
(c) Debit, debit
(d) Credit, credit

Uni-lateral transfers are included in

13 (a) current account Bop
(b) capital account Bop
(c) Both(a) and (b)
(d) None of these

Choose the incorrect statement from given below.

14 (a) Repayment of loan taken from IMF will be recorded on debit side.
(b) Surplus in BoP refers to a state where debit side exceeds credit side.
(c) Increase in investment from rest of the world decreases the exchange rate.
(d) Devaluation of current items improves trade balance of domestic country.

Currency depreciation leads to improvement on balance of trade.

15 (a) True
(b) False

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 (c) Partially true
(d) Can't be predicted
BOP is an accounting statement that shows systematic records of all economic
16 transactions between _____ and _____.
(a) government, public (b)agriculture, industry
(c) a country, rest of the world (d)industry, services sector

The items which can be seen touched or felt are known as ________.
17 (a) visible items (b) invisible items
(c) unilateral transfers (d) investments

Balance of payment account uses ______ system of accounting for recording the
18 transactions.
(a) record keeping (b) single entry
(c) double entry (d) favourable

BOP is measured as:

19 (a) difference between visible items of exports and imports
(b) difference between invisible items of exports and imports
(c) difference between external and internal flow of gold
(d) difference between all receipts of foreign exchange and payments of foreign
exchange
In which of the following categories are the transactions of balance of trade recorded?
20 (a) Visible items
(b) Invisible items
(c) Capital transfers
(d) All of these
Currentaccountrecordstransactionsrelatingto:
21 (a)exportandimportofgoods (b)non-factorandfactorincome
(c)currenttransfers (d)allofthese

Whichofthefollowingarenotincludedinbalanceoftrade?
22 (a)Paymentofinterestanddividend (b)Expenditurebythetourists
(c)Borrowingfromrestoftheworld (d)Allofthese

Ifthevalueofvisibleexports of goodsexceedsthevalueofvisibleimports of goods

23 ,thebalancerelatesto:
(a)currentaccountBoP (b)capitalaccountBoP
(c)balanceoftrade (d)noneofthese

24 Unilateraltransfersare:

(a)one-sidedpayments (b)receipts<payments

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 (c)factorincomes (d) none of them

25 SurplusinBoPoccurswhen:

(a)receipts=payments (b)receipts <payments

(c)receipts>payments (d)allofthese

26 Balance of payments account consists of:-

(a) current account (b) capital account

(c) both of these (d) none of these

27 Where are purchase of bond equity and shares recorded?

(a) current account (b) capital account

(c) errors and omissions (d) none of these

28 Above the line items are also known as_______________

(a) autonomous items (b) accommodating items

(c) current account items (d) capital account items

29 What change will take place in foreign exchange reserves of a country, if the BOP is
in deficit?

(a) foreign exchange reserves will Increase (b) foreign exchange reserves will
decrease

(c) No change (d) May increase or decrease

30 Balance of payment "surplus" is an excess of:-

4|Page 8 October 2021,ZIET BHUBANESWAR
 (a) current account payment over current account receipts

(b) capital account payment over capital account receipts

(c) Autonomous payments over autonomous receipts.

(d) Autonomous receipts over autonomous payments.

31 Which account is included in the composition of the Balance of Payments?

(a) Current Account

(b) Capital Account

(c) Both (a) and (b)

(d) None of the above

32 Which one is the item of the Current Account?

(a) Import of Visible Items

(b) Expenses of Tourists

(c) Exports of Visible Items

(d) All the above

33 The component(s) of Balance of Payment is/are:

(a) Current Account

(b) Capital Account

(c) Both (a) and (b)

(d) None of these

34 Which items are included in the balance of trade?

(a) Invisible Item

(b) Capital Transfer

(c) Visible Item

(d) All of these

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35 Balance of Trade means:

(a) Capital Transaction

(b) Import and export of goods

(c) Total debit and credit

(d) All the above

36 According to the following data, balance of trade would be:

1. Total exports of merchandise ₹ 1000 crore

2. Total Imports of merchandise ₹ 1200 crore

3. Total exports of invisibles ₹ 200 crore

4. Total imports of invisibles ₹ 100 crore

(a) surplus of ₹ 100 crore

(b) deficit of ₹ 100 crore

(c) Surplus of ₹ 200 crore

(d) deficit of ₹ 200 crore

37 Measures to improve the adverse balance of payment includes:

(a) Currency devaluation

(b) Import substitution

(c) Exchange control

(d) All of the above

38 Which is the feature of Balance of Payment?

(a) Systematic Accounts

(b) Fixed Time Period

(c) Comprehensiveness

(d) All the above

39 Which one is the invisible item of Balance of Payment?

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 (a) Banking

(b) Shipping

(c) Communication

(d) All of these

40 Which items are included in the Balance of Payments?

(a) Visible Items

(b) Invisible Items

(c) Capital Transfers

(d) All the above

41 Balance of Trade =?

(a) Export of Visible Items – Imports of Visible Items

(b) Export of both Visible and Invisible Items – Import of both Visible and Invisible
Items

(c) Import of Visible Items – Export of Visible Items

(d) None of the above

42 If balance of trade is showing a deficit of ₹ 300 crores and value of export is ₹ 1200
crores, then the value of imports would be:

(a) ₹ 300 crores

(b) ₹ 1200 crores

(c) ₹ 1500 crores

(d) ₹ 900 crores

43 The trade of visible and invisible items is known as _________

(A) Balance of Payments

(B) Balance of Trade

(C) Deficit of interest

(D) Profit
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44 When there is an unfavourable balance of trade?

(A) X > M

(B) X = M

(C) X < M

(D) None of these

45 When there is a favourable balance of trade?

(A) X > M

(B) X = M

(C) X < M

(D) None of these

46 BOP is a systematic record of all ........................ between residents of a country and

rest of the world.

(A) Financial statements

(B) Economic transactions
(C) Both (A) and (B)
(D) None of these

47 Which of the following is not being included in the BOP account?

(A) Visible transactions between residents and rest of the world

(B) Invisible transactions between people of Bihar and West Bengal
(C) Visible transactions between India and Nepal
(D) Unilateral transactions between India and World Bank.

48 Calculate the current account balance from the following information:

Particulars (₹ in crore)

i. Exports of visible items 125

ii. Imports of invisible items 70

iii. Imports of visible items 90

iv. Exports of invisible items 95

v. Gifts and transfers from rest of the world 25

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 Choose the correct alternative:

(A) ₹85
(B) ₹ (-)85
(C) ₹ 75
(D) ₹ 95

49 State which of the following transactions will be recorded on credit side of BOP.

(A) Indian Government repays loan taken from IMF.

(B) Acquisition of a foreign company by TATA
(C) Purchase of shares of Infosys by a Japanese resident.
(D) Purchase of toys from china.

50 Which of the following is not a component of Capital account of BOP?

(A) Foreign direct investment

(B) Borrowings from Japan
(C) Change in foreign exchange reserve
(D) One sided transfers

51 Autonomous transactions of BOP take place on...........................

(A) Capital account

(B) Current account
(C) Both (A) and (B)
(D) None of these

52 Which of the following is an example of Accommodating transactions of BOP?

(A) Merchandise exports and imports of goods and services

(B) Foreign investment in India with the aim of earning profit.
(C) Receipts and Repayments of long-term loans by private individuals.
(D) Foreign exchange reserves maintained by RBI.

53 Match the statements given in the column I with the correct options given in column
II.

Column I Column II
i. Capital account
a. Balance of trade
ii. Balance of visible items
b. Current account
iii. Includes both visible and invisible
c. Below the line items items
iv. Accommodating items
d. Borrowings from World Bank

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 Choose the correct alternative:

(A) a – i, b – ii, c – iii, d – iv

(B) a – ii, b – iii, c – iv, d – i
(C) a – i, b – iii, c – ii, d – iv
(D) a – ii, b – iv, c – iii, d – i

54 Imports of machinery are recorded in the................. Account and borrowings are

recorded in the............... account.

(A) Current, Capital

(B) Capital, Capital
(C) Capital, Current
(D) Current, Current

55 Unilateral transfers are:

(A) one-sided payments

(B) receipts < payments
(C) factor incomes
(D) both (A) and (C)

56 Current account records transactions relating to:

(A) export and import of goods

(B) non-factor and factor income
(C) current transfers
(D) all of these

57 Balance of trade is measured as:

(A) difference between import and export of goods

(B) difference between import and export of services
(C) difference between import and export of capital
(D) difference between all exports and all imports

58 Foreign Direct Investment from abroad are recorded on the:

(A) Credit side of Current Account

(B) Debit side of Current Account
(C) Credit side of Capital Account
(D) Debit side of Capital Account

59 Current Account Surplus arises when credit items are____________ debit items.

(A) Less than

(B) Equal to

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 (C) More than
(D) All the above

60 If the value of visible exports exceeds the value of visible imports, the balance relates
to:

(A) current account BOP

(B) capital account BOP
(C) balance of trade
(D) none of these

61 The current account of BOP includes transaction related to-

a) Financial assets b) borrowing from foreign countries

c) export and import of visible items d) foreign investment

62 BOP deficit leads to:

a) decrease in official reserves b) increase in official reserves

c)No change in official reserves d) increase in BOT account

63 The measurement of Balance of Payment deficit is based on:

a) Autonomous transaction b) Accommodating Transactions

c) Current Account Transactions d) Capital Account Transactions

64 Which of the following statement is true:

a) BOT includes foreign borrowing

b) Autonomous items are determined by profit motive

c) Accommodating items are above the line items

d) BOT includes payments of interest and dividends

65 If balance of trade is showing a deficit of Rs. 500 crore and Value of imports is Rs.
1500 crores , then the value of exports would be:

a) 1000 crore b) 2000 crores c) 500 crores d) 1500 crores

66 Who out of the following is not included in “Residents” in BOP transactions?

a) Firms b) Foreign military personnel

c) Government agencies d) Individuals

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67 Inflow of foreign exchange is recorded on the _________ side.

a) Credit b) Debit c) Either (a) or (b) d) Neither (a) nor (b)

68 Surplus on BOP arises when:

a) Autonomous payments>autonomous receipts

b) Accommodating receipts > accommodating payments

c) Accommodating payments>accommodating receipts

d) Autonomous receipts > autonomous payments

69 ’Import on machinery’ is recorded in the ___________account and ‘Borrowings from

abroad ‘is recorded in the _____________account.

a) Current, capital

b) Capital, current

c) Capital, capital

d) Current, current

70 A company located in India receives a loan from a company located abroad. How is
this transactions recorded in India’s balance of payments account?

a) Credit side of current account b) Debit side of current account

c) Credit side of capital account d) Debit side of capital account

71 What is the name of those economic transactions which are made by the government
to make equilibrium in balance of payment?

a) Accommodating items b) Autonomous items

c) Capital account d) Current account

72 Which of the following is not recorded in the Capital Account of Balance of

Payments?

a) Equity capital b) Gifts, remittances and grants

c) Government aid d) Offshore funds

73 Which of the following are not included in balance of trade?

12 | P a g e 8 October 2021,ZIET BHUBANESWAR

 a) Payment of interest and dividend b) Expenditure by the tourists

c) Borrowing from rest of the world d) All of these

74 Foreign exchange transactions which are independent of other transactions in the

Balance of Payments Account are called:

a) current account transactions b) capital account transactions

c) autonomous transactions d) accommodating transactions

75 Foreign exchange transactions dependent on other foreign exchange transactions are

called:

a) current account transactions b) capital account transactions

c) autonomous transactions d) accommodating transactions

76 Balance of payment Accounts is a

a) Systematic record of all economic transactions between the residents of a
country

b) Systematic record of all receipts between the residents of a country and abroad

c) Systematic record of economic transactions between the residents of a country

& abroad

d) Systematic record of all expenditures between the residents of a country and

abroad

77 One of the components of current account of the BOP account is

a) Exports and imports of goods

b) Change in Borrowing and lending by the govt.

c) Investment by the govt.

d) Investment to and from abroad

78 Autonomous Items are also called

a) Above the line items

b) On the line items

c) None of the above

d) Below the line items

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79 Balance of visibles is the

a) Value of visibles exported less value of invisibles imported

b) Value of invisibles exported less value of visibles imported

c) None of the above

d) Value of visibles exported less value of visibles imported

80 A surplus in BOP occurs

a) When autonomous foreign exchange payments equals autonomous foreign

exchange receipts

b) When autonomous foreign exchange payments is less than autonomous foreign

exchange receipts

c) When autonomous foreign exchange paymentsexceeds autonomous foreign

exchange receipts

d) When autonomous foreign exchange payments is in negative deficit

81 Which account is included in the composition of the Balance of Payments?

a) Current Account

b) Capital Account

c) Both a) and b)

d) None of the above

82 Which one is the item of Capital Account?

a) Government Transaction

b) Private Transactions

c) Foreign Direct Investment

d) All the above

83 The current account of BOP includes trade balance and

a) Settlement account
b) Capital account
c) Invisibles
d) All of the above

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84 Foreign exchange transaction dependent on other foreign transactions are called
a) Current account transaction
b) Capital account transaction
c) Accommodating transactions
d) Autonomous transaction

85 Which of the following transactions are recorded in the current account of the balance
of payments?

a) Import and export of goods and services

b) Transfers from one country to the other

c) Both a) and b)

d) Lending to abroad

86 If balance of trade is (-) Rs.700 crore and value of exports is Rs.500 crore then the
value of imports will be:

a) Rs. 1100 crore

b) Rs. 1200 crore

c) Rs. 1300 crore

d) Rs. 300 crore

87 Which of the following pairs is not correctly matched with regard to balance of
payment accounts?

a) Import of goods and services – Debit in the current account

b) Receipts of transfer payments – Credit in the current account
c) Direct investment receipt – Credit in the capital account
d) Portfolio investment payments – Debit in the current account

88 Which of the following does not form part of current account under balance of
payments?

a) Export and import of goods

b) Export and import of services

c) Income receipts and payments

d) Capital receipts and payments

89 Autonomous items are related to those transactions which

15 | P a g e 8 October 2021,ZIET BHUBANESWAR

 a) are determined by motive of profit
b) are not concerned with the equilibrium status of BOP
c) Both a) and b)
d) are dependent on other foreign exchange transactions

90 Balance of Trade means :

(a) Capital Transaction

(b) Import and export of goods

(c) Total debit and credit

(d) All the above

91 Who out of the following is included in " Residents " in BOP transactions ?

a) Firms

b) Foreign military personnel

c) Government agencies

d) Individuals

92 Balance of Payment is a ______ concept.

a) Stock

b) Flow

c) Both (a) and (b)

d) Neither (a) nor (b)

93 'Import of Machinery ' is recorded in _____ Account and 'Borrowings from Abroad ‘
is recorded in the _____ Account.

a) Current, Capital

b) Capital, Current

c) Capital, Capital

d) Current, Current

94 Invisibles are included in the:

16 | P a g e 8 October 2021,ZIET BHUBANESWAR

 a) Balance of trade account BOP

b) Current account BOP

c) Capital account BOP

d) all of these

95 Decrease in Official Reserves Account =

a) current account deficit + capital account deficit

b) current account deficit - capital account deficit

c) current account surplus + capital account surplus

d) current account surplus - capital account surplus

96 Balance of payment is a set of accounts showing:

a) all monetary transactions of a country with rest of the world

b) all economic transactions between residents of domestic country and residents

of foreign countries

c) all autonomous transactions of a country with rest of the world

d) both (a) and (b)

97 External commercial borrowing is available at the :

a) Nominal rate of interest

b) Concessional rate of interest

c) Market rate of interest

d) Real rate of interest

98 Autonomous items are classified as:

a) Below the line item of BOP

b) Above the line items of BOP

c) On the line items of BOP

d) both (a) and (c)

17 | P a g e 8 October 2021,ZIET BHUBANESWAR

99 Deficit in Balance of trade indicates:

a) Export of goods > Imports of goods

b) Export of goods and services < Imports of goods and services

c) Export of goods < Imports of goods

d) All of these

100 According to Mint Par Parity theory, exchange rate is determined by:

a) paper currency

b) Managed Floating

c) Fixed Exchange Rate

d) Gold & Silver

101 Which of the following is the merit of flexible exchange rate system?

a) Optimum resource allocation

b) Market stability

c) External shock

d) Stable monetary policy

102 An Indian real estate company receives rent from Google in New York. This
transaction would be recorded on _______ side of _______ account.

a) Credit, Current

b) Credit, Capital

c) Debit, Capital

d) Debit, Current

103 Which of the following pairs is not correctly matched with regard to balance of
payment accounts?

18 | P a g e 8 October 2021,ZIET BHUBANESWAR

 a) Import of goods and services – Debit in the current account

b) Receipts of transfer payments – Credit in the current account

c) Direct investment receipt – Credit in the capital account

d) Portfolio investment payments – Debit in the current account

104 A country is said to be in debt trap if

a) It has to abide by the conditionality imposed by the International Monetary Fund

b) It is required to borrow money to make interest payments on outstanding loans

c) It has been refused loans or aid by creditors

d) The World Bank charges a very high rate of interest on outstanding as well as new
loans

105 Which of the following are the components of balance of payments?

1. Financial capital transfer

2. External loan and investment

3. Foreign institutional investment

4. Issuing of external bonds

5. Export and imports of goods and services

Select the correct answer using the codes given below:

a) 1, 2, and 3 only

b) 2, 3, and 4 only

c) 1, 4, and 5 only

d) 1, 2, 3, 4, and 5

19 | P a g e 8 October 2021,ZIET BHUBANESWAR

ANSWERS
Sl.No. ANSWERS OF MULTIPLE CHOICE QUESTIONS
1 D
2 A
3 A
4 D
5 C
6 D
7 B
8 C
9 D
10 A
11 B
12 B
13 A
14 B
15 D

16 C
17 A
18 C
19 D
20 A
21 D
22 D
23 C
24 A
25 C
26 C
27 B
28 A
29 B
30 D
31 (c) Both (a) and (b)
32 (D) All the above

33 (C) Both (a) and (b)

34 [C] Visible Item
35
(b) Import and export of goods

20 | P a g e 8 October 2021,ZIET BHUBANESWAR

36 (D) deficit of ₹ 200 crore
37
(d) All of the above

38
(d) All the above
39
(d) All of these
40 (d) All the above
41 (a) Export of Visible Items – Imports of Visible Items
42 (c) ₹ 1500 crores
43 (A) Balance of Payments
44 (C) X < M
45 (A) X > M
46 B
47 B
48 A
49 C
50 D
51 C
52 D
53 B
54 A
55 A
56 D
57 A
58 C
59 C
60 C
61 c) export and import of visible items
62 a) decrease in official reserves
63 a) Autonomous transaction
64 b) Autonomous items are determined by profit motive
65 a) 1000 crores
66 b) Foreign military personnel
67 a) Credit
68 d) Autonomous receipts > autonomous payments
69 a) Current, capital
70 c) Credit side of capital account
71 a) Accommodating items
72 b) Gifts, remittances and grants
73 d) All of these
74 c) autonomous transactions
75 d) accommodating transactions
76 C

21 | P a g e 8 October 2021,ZIET BHUBANESWAR

77 A
78 A
79 D
80 B
81 C
82 D
83 C
84 C
85 C
86 B
87 D
88 D
89 C
90 B
91 A
92 A
93 A
94 B
95 A
96 D
97 C
98 B
99 C
100 D
101 A
102 A
103 D
104 B
105 D

PREPIRED BY : PGT ECONOMICS OF BHUBANESWAR, GUWAHATI,

KOLKATA, RANCHI, SILCHAR AND TINSIKIA REGION.
VETTED BY :TINSUKIA REGION

22 | P a g e 8 October 2021,ZIET BHUBANESWAR

 CHAPTER -17-BALANCE OF PAYMENTS ACCOUNT
ASSERTION- REASON QUESTIONS

Sl. Question
No.
1 Assertion (A): A country always tries to balance the BOP i.e., balance in current account
equals to balance in capital account.
Reason (R): Balanced BOP indicates stable economic relation with rest of the world.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.
2 Assertion (A): Accommodating items of trade are undertaken to maintain the balance in
the BOP account.
Reason (R): Accommodating items are net consequences of autonomous transactions that
are undertaken to correct disequilibrium in autonomous items of BOP.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true

3 Assertion (A): Purchase of second-hand machinery from abroad is not recorded in balance
of payment.
Reason (R): Sale and purchase of second-hand goods from abroad are not included in the
estimation of national income.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
4 Assertion (A): Increased lending abroad are recorded on the debit side of the capital
account.
Reason (R): Lending affect the assets and liabilities of the economy and involves outflow
of income.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
5 Assertion (A): All transactions recorded in Balance of Payment are autonomous
transactions.
Reason (R): Autonomous transactions are recorded in both current and capital account of
BoP.

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 (A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
6 Assertion:Whenthereisatradedeficitandcurrentaccountdeficit,therewillalwaysbeBoPdeficit.
Reason:Whenthereisatradedeficitandcurrentaccountdeficitbutacapitalaccountsurplus(i.e.,netc
apital inflow),theremaybeBalancedBoPorBoPsurplus.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
7 Assertion(A).Differencebetweenvalueofexportsandimportsofgoodsandservicesiscalledtrade
balance.
Reason(R),Tradebalanceisthedifferencebetweenvalueofexportsofgoodsandimportsofgoodsonl
y. Itdoesnotincludeexportsandimportsofservices.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
8 Assertion(A):Inbalanceofpayments,repaymentofloansbyIndianGovernmenttoUSGovernme
ntwillberecordedonthecreditsideofcurrentaccounts.
Reason(R):RepaymentofloansbyIndian
governmenttoUSGovernmentwillberecordedinthecapitalaccountonthedebitsideasitwillleadtoo
utflowofforeignexchange.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
9 Assertion(A):Profitsreceivedfrominvestmentsabroadisrecordedincapital Account.
Reason(R):Profitsreceivedfrominvestmentsabroadisrecordedinthecurrentaccountsinceitisani
nvestmentincome (factor income), It will be recorded on the credit side of the current
account since it leads to inflow offoreignexchange
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
10 Assertion(A):Importofmachinesisrecordedincurrentaccount.
Reason(R):Allimportsandexportsofgoodsarerecordedinthecurrentaccount.
Readthefollowingstatements-
Assertion(A)andReason(R),andselectthecorrectalternativeineachcase.

2|Page8 October 2021,ZIET BHUBANESWAR

 (A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
11 Assertion (A): Current account is in excess of balance of payments.
Reason( R ): Receipts on current account are more than payments on current account.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
12 Assertion (A): Current account of balance of payments is balanced.
Reason (R): Receipts in the current account are equal to payments in the current account.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
13 Assertion (A): Capital account is in equilibrium when capital inflows are equal to capital
outflows.
Reason (R): Excess of capital account occurs when capital inflows are less than capital
outflows.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
14 Assertion (A) : Alternatively, a country cannot use its foreign exchange funds to balance
its balance of payments deficit.
Reason (R ) Current account deficit of balance of payments is not adjusted against capital
account surplus.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
15 Assertion (A): Current account is a statement of transfer payments in the trade of goods
and services.
Reason (R): Capital account is a statement of all international transactions of assets.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
16 Assertion (A): 'Indians Investing in assets abroad will be recorded under debit side of

3|Page8 October 2021,ZIET BHUBANESWAR

 capital account in Balance of Payments.’
Reason (R): Indians investing in assets abroad will lead to an outflow of foreign currency;
it will be recorded under debit side of capital account in balance of payments.
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct
explanation of Assertion (A)
(C) Assertion (A) is true but Reason (R) false.
(D) Assertion (A) is false but Reason (R) is true.
17 Assertion (A): A country with trade deficit cannot have current account surplus in its
Balance of Payments.
Reason (R): Trade deficit occurs when value of goods / visible imported is more than the
value of goods / visible exported. Current Account Surplus in this situation will arise when
the deficit on trade account is less than the surplus on account of invisibles.
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct
explanation of Assertion (A)
(C) Assertion (A) is true but Reason (R) false.
(D) Assertion (A) is false but Reason (R) is true.
18 Assertion (A): Trade deficit is always a great cause of worry for an economy,
Reason (R): Trade deficit is a lesser cause of worry if it reflects a rise in investment which
will build the capital stock and increase the future output in an economy.
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct
explanation of Assertion (A)
(C) Assertion (A) is true but Reason (R) false.
(D) Assertion (A) is false but Reason (R) is true.
19 Assertion (A): 'Make in India' Programme will have favourable effect on Balance of
Payments position of India.
Reason (B): 'Make in India' will increase supply (inflow) of foreign exchange in India,
causing improvement in the balance of payment position.
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct
explanation of Assertion (A)
(C) Assertion (A) is true but Reason (R) false.
(D) Assertion (A) is false but Reason (R) is true.
20 Assertion (A): ‘Import of Pulses’ will have favourable effect on Balance of Payments
position of India.
Reason (R): Import of pulses will lead to outflow of foreign exchange from the country,
causing adverse effect on balance of payment position.
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct

4|Page8 October 2021,ZIET BHUBANESWAR

 explanation of Assertion (A)
(C) Assertion (A) is true but Reason (R) false.
(D) Assertion (A) is false but Reason (R) is true.
21 Assertion A: Accommodating transactions are undertaken to make equilibrium in BOP
account.
Reason R: Accommodating items are also called above the line items.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.

22 Assertion A: ‘Borrowings from abroad’ is recorded in the credit side of capital account of
the balance of payments account.
Reason R: ‘Borrowings from abroad’ leads to the receipts of foreign exchange from rest of
the world.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.

23 Assertion A: Balance of Trade refers to difference between the amount of exports and
imports of visible items (goods).
Reason R: Balance of Trade is a wider concept as it includes the amount of exports and
imports of visible items.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) d) Assertion is false, reason is true
24 Assertion (A): 'Make in India' Programme will have favourable effect on Balance of
Payments position of India.
Reason (R): 'Make in India' will increase supply (inflow) of foreign exchange in India,
causing improvement in the balance of payment position.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true

25 Assertion (A): Mr. Roy sends Rs. 95,000 as a birthday gift to his son living in England.
Reason (R): It will be recorded in debit side of Balance of Payments of India as it leads to
outflow of foreign currency.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of

5|Page8 October 2021,ZIET BHUBANESWAR

 assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.

26 Assertion (A): Balance of trade is also referred to as Balance of payments.

Reasoning (R): Balance of trade includes the value of imports and exports of visibles only.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.
27 Assertion (A): Trade balance of BOP shows deficit of Rs. 500 crore.
Reason (R): Export of goods worth Rs. 1100 crore and import of goods worth Rs. 1600
crore are recorded in the current account of balance of payments.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.
28 Assertion (A): Autonomous items cause movements of goods and services across the
borders.
Reason (R): Accommodating items cause to clear the imbalance in BOP.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.
29 Assertion (A): Autonomous transactions are independent of the state of BOP account.
Reason (R): Autonomous items are also known as above the line items
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.
30 Assertion (A): Current account transactions bring a change in the current level of
country’s income.
Reason (R): Current account includes all items expressing change in stock.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.
31 Assertion (A): Balance of Trade includes only Merchandise Transactions.
Reason (R): Unfavourable Balance of Payments can be met out of favourable Balance of
Trade.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.

6|Page8 October 2021,ZIET BHUBANESWAR

 (B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
32 Assertion (A):TheBoP reflect performance of our economy in relation to rest of the world.
Reason (R): BoP is an accounting statement that provide a systematic record of all the
economic transactions (inflow and outflow) between Residents of a country and the rest
of the world in a given period of time.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
33 Assertion (A):The decrease in official reserves(foreign exchange reserves) appears as a
credit item in BOP.
Reason (R):Any withdrawal from official reserves is recorded in the credit side of BoP
because there is inflow of foreign exchange to BoP from official reserves.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
34 Assertion (A):Portfolio investment is not a component of capital account of BoP.
Reason (R) :Portfolio investment refers to purchase of an asset from the rest of the world
which does not give full control of asset.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
35 Assertion (A): Current Account transactions bring a change in the current level of a
country's income.
Reason (R): Current Account includes all items expressing change in stock.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true

7|Page8 October 2021,ZIET BHUBANESWAR

Answer
Q.No. Answer
1 (A)
2 (A)
3 (D)
4 (A)
5 (D)
6 D
7 D
8 D
9 D
10 A
11 A
12 A
13 C
14 C
15 B
16 A
17 D
18 D
19 A
20 D
21 C
22 A
23 C
24 A
25 A
26 D
27 A
28 B
29 B
30 C
31 C
32 A
33 A
34 D
35 A

PREPIRED BY : PGT ECONOMICS OF BHUBANESWAR, GUWAHATI,

KOLKATA, RANCHI, SILCHAR AND TINSIKIA REGION.
VETTED BY :TINSUKIA REGION

8|Page8 October 2021,ZIET BHUBANESWAR

 CHAPTER -17-BALANCE OF PAYMENTS ACCOUNT
CASE STUDY BASED QUESTIONS

CB Question Content
Q
NO
1 India’s current balance (CAB) recorded a surplus of US$ 19.8 billion (3.9 per cent of GDP)in Q1
of 2020-21 on top of a surplus of US$ 0.6 billion(0.1 per cent of GDP)in the preceding
quarter,i.e Q4 of 2019-20, a deficit of US$ 15.0 billion(2.1 per cent of GDP)was recorded a year
ago(i.e in Q1 2019-20).
The surplus in the current account in Q1 of 2020-21 was on account of a sharp contraction in the
trade deficit to us$ 10.0 billion due to steeper decline in merchandise imports relative to exports
on a year basis.
Net services receipts remained stable, primarily on the back of net earnings from 1.What is
current account of BOP?

2.In which account are the services recorded?

3.Reduction of trade surplus requires

a. decrease in exports
b. increase in exports
c. decrease in imports
d. both b&c

4.Balance of trade includes which of the followings items?

a. invisible items
b. visible items
c capital trade
d. all of these

1|Page 8 October 2021,ZIET BHUBANESWAR

2 MrShaktikanta Das, the RBI governor, said that COVID -19 economic crisis has hit the Indian
economy hard but has improved India’s BOP situation. He further added that we ave benefitted
from falling prices in te beginning of COID crisis plus a weak demand for imported goods. This
was backed by a boom in export of technology focused services exootrs which led to a positive
change in the current account balance.”GDP growth is slowly turning the corner and a large
capital expenditure announced by the government will support economic activity and
investment”, said RBI governor.
1.Large-scale export of technology focused service sector produce is a part of:
a.merchandise account
b. balance of trade
c. unilateral transfer
d. invisible items

2.Autonomous items in BOP accounting are a part of:

a.current account
b. capital account
c. Both a & b
d. none of these

3.Measures to improve the adverse BOP includes:

a. currency devaluation
b. import substitution
c. exchange control
d. all of these

4.Balance of payments is calculated as:

a. it reveals the debt status of the country
b. It includes the devaluation of country’s currency
c. It enables the government to decide on the fiscal and trade policies
d. all of these

2|Page 8 October 2021,ZIET BHUBANESWAR

3 Madhavi Arora, lead economist at Edelweiss
Securities,saidFY21mayseeCADimproveto0%ascrudepricesfall.'Weexpectexportsgrowthtorema
infragileamiddemandshock
.Importgrowthmayremainsluggishaswellamidweakdomesticdemand.Capitalaccountmayworse
ninFY21asdollarfundingcouldbeaconcern.BOPcould remaininsurplusof-$32-
35billion,helpedbylowercurrentaccountdespiteweakFPI(ForeignPortfolioInvestments)hotmoney
appetite,'sheadded.

Questions:

1. Export and Import of goods is also known as:

(a) Invisible trade (b)Visible trade

(c)One-sided transactions (d)Unrequited transfers

2.Exports of goods and services will be recorded in _______side of current account.

(a) Debit (b) Credit

If domestic Demand is low then Import Growth will be sluggish.

(Yes/ No)

4 ForeigntradeinfluencesIndianaggregate demandintwoways.First,whenIndiansbuyforeigngoods,
thisspendingi.e., importsescapeas aleakagefromthe
circularflowofincomedecreasingaggregatedemand.Second,ourexportstoforeignersenterasaninjectionintothe
circularflow, increase inaggregatedemandforgoodsproducedwithinthedomestic economy. Balance of
Payment records the transactions in goods, services and financial assets betweenresidentsof
acountrywiththerestof theworld.Therearetwomainaccountsin theBOP–
theCurrentAccountandCapitalAccount.Currentaccountistherecordoftrading
goodsandservicesandtransferpayments.CapitalaccountrecordsallInternationaltransactionsofassets,e.g.,Money,
stocks,bonds,governmentdebt,etc.
Questions:
WhichofthefollowingisacomponentofthecurrentaccountofBalanceofPayment?
(a).Export and import of goods and services
Remittances given by private citizens living abroad

(b) Net International income from compensation of employees

(c) All of the above

3|Page 8 October 2021,ZIET BHUBANESWAR

5 Capital Account records all international transactions of assets. An asset is any one of the forms
in which wealth can be held, for example: money, stocks, bonds, Government debt, etc. Purchase
of assets is a debit item on the capital account. If an Indian buys a UK Car Company, it enters
capital account transactions as a debit item (as foreign exchange is flowing out of India). On the
other hand, sale of assets like the sale of share of an Indian company to a Chinese customer is a
credit item on the capital account. These items are Foreign Direct Investments (FDIs), Foreign
Institutional Investments (FIIs), external borrowings and assistance.
1.The details of all international transactions are called:
( a ) Current account ( b ) Capital account
( c ) Both the above ( d ) Non both the above
2.If an Indian buys a UK Car Company, it enters capital account transactions as a …………
item.
3. Purchase of assets is a …….. item on the capital account. (debit / credit)
6 National income and balance of payments are two important macroeconomic variables. In an
open economic model, national income is sum total of expenditure of all the sectors of an
economy. GDP is probably the most widely reported and closely monitored aggregate statistic.
GDP is a measure of the size of an economy. It tells us the total amount of ‘stuff’ the economy
produces. Any change in the demand for domestic goods leads to change in national income of
the country. Also, changes in foreign exchange rate affects trading relation between countries.
i. What will be the likely impact of increase in exports on BOT?
(A) Improve
(B) Deteriorate
(C) No change
(D) Can’t be predicted
ii. Assertion (A): improvement in balance of payments has an incremental impact on the
national income of a period.
Reason (R): inflow of foreign exchange in the domestic country is caused by changing rate
of returns around the globe.
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct

4|Page 8 October 2021,ZIET BHUBANESWAR

 explanation of Assertion (A)
(C) Assertion (A) is true but Reason (R) false.
(D) Assertion (A) is false but Reason (R) is true.
iii. Foreign investment will be recorded on which of the following account of BOP?
(A) Current account
(B) Capital account
(C) Both (A) and (B)
(D) Not recorded in BOP
iv. Choose the correct statement form given below.
(A) National income and BOP are directly related
(B) BOP transactions help government to maintain foreign reserve
(C) Both (A) and (B)
(D) Both are false
v. Balance of payments in general, records all transactions between residents of home country
and.................
(A) Non-residents of home country
(B) Citizens of rest of the world
(C) Residents of the rest of the world
(D) All of the above
7 The growing strength of India’s BOP was observed in the post reform period, since the crisis of
1991 continued in 2005-2006. This growing strength was inspiring of a widening current account
deficit to the tune of US dollar 9.2 million that is equivalent to 1.1 percent of GDP in 2005-2006.
Rising foreign investment, together with a sharp revival of inflows of non-resident deposits,
maintained a strong balance in the capital account vis-a-vis high level of reserves. Given such
robust, external position of RBI had deemed it opportune to revisit the issue of full capital
account convertibility.
In this scenario, Indian companies hand holding with international agencies (taxing loans and
equity partnership) plans to make huge investments in retails and infrastructure. Also, many
companies are boosting up their foreign country operations. They are less perturbed about the
rising inflation rate or the other tight money measures adopted by the government. This could be
due to favourable consolidation exposure and the opportunity in covering their risk in currency

5|Page 8 October 2021,ZIET BHUBANESWAR

 future market.
i. Current account of BOP records which of the following transactions?
(A) Transactions which are done for profit motive
(B) Transactions which have no impact on the capital reserve of the country
(C) Transactions which bring BOP in the state of equilibrium
(D) Both (A) and (B)
ii. If government increase tariff on imports of goods, how it will impact the state of BOP?
(A) This will lead to inflow of foreign exchange
(B) This will lead to outflow of foreign exchange
(C) There will be no impact on the state of BOP
(D) Can’t be predicted
iii. ................transaction of BOP is carried by the central bank to bring equilibrium.
(A) Autonomous
(B) Accommodating
(C) Both (A) and (B)
(D) Neither (A) nor (B)
iv. Assertion (A): Post the economic reform of 1991, India’s BOP has improved many folds.
Reason (R): Devaluation of currency during the new economic reforms improved the
exports surplus of the country
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct
explanation of Assertion (A)
(C) Assertion (A) is true but Reason (R) false.
(D) Assertion (A) is false but Reason (R) is true.
v. Indian companies coming in collaboration with foreign companies will lead to a/
an.................for foreign exchange reserve.
(A) Increase
(B) Decrease
(C) No change
(D) Either (A) or (B)

6|Page 8 October 2021,ZIET BHUBANESWAR

8 The surplus in the BoP will come down to less than half of last year’s levels. The trade deficit
will definitely increase as commodity prices—especially crude oil—stay elevated and non-oil,
non-fuel imports pick-up on the back of a recovery. Unless they head well beyond $80/ barrel,
however, the import bill should be manageable. The average monthly trade deficits could soon
hit double-digits as vaccinations pick up and the busy season sets in. As against the surplus of
0.9% of GDP in FY21, the deficit in the current account for FY22 is pegged at anywhere
between 1.1-1.6% of GDP, depending on where Brent rules.

1. Rapid increase in the price of crude oil caused .................. (favourable/unfavourable)

impacts on Balance of Payments of India.
2. Increase in imports will .................. increase/ decrease trade deficit

9 Preliminary data on India’s balance of payments (BoP) for the third quarter (Q3), i.e., October-
December 2020-21, are presented.

India’s current account balance recorded a deficit of US$ 1.7 billion (0.2 per cent of GDP) in
Q3:2020-21 after a surplus of US$ 15.1 billion (2.4 per cent of GDP) in Q2:2020-21 and US$
19.0 billion (3.7 per cent of GDP) in Q1:2020-21; a deficit of US$ 2.6 billion (0.4 per cent of
GDP) was recorded a year ago [i.e. Q3:2019-20].

Underlying the current account deficit in Q3:2020-21 was a rise in the merchandise trade deficit
to US$ 34.5 billion from US$ 14.8 billion in the preceding quarter, and an increase in net
investment income payments.

Net services receipts increased, both sequentially and on a year-on-year basis, primarily on the
back of higher net export earnings from computer services.

In the financial account, net foreign direct investment (FDI) recorded robust inflow of US$ 17.0
billion as compared with US$ 9.7 billion in Q3:2019-20.

Net foreign portfolio investment (FPI) was US$ 21.2 billion as compared with US$ 7.8 billion in
Q3:2019-20, primarily reflecting net purchases by foreign portfolio investors in the equity
market.

1. Current account includes

a) Exports and imports of goods only
b) Exports and imports of goods and services only
c) Export and imports of visibles and invisibles
d) All transactions related to unilateral transfers.

7|Page 8 October 2021,ZIET BHUBANESWAR

 2. Deficit in BOT shows:
a) Exports of goods are greater than imports of goods
b) Exports of goods are equal to imports of goods
c) Exports of goods and services are less than imports of goods andservices.
d) Exports of goods are less than imports of goods.
3. How to restore equilibrium in BOP when there is deficit current account?
a) By importing more goods and services
b) By borrowing from abroad
c) By lending to abroad
d) By increasing official foreign exchange reserves
4. The economic transactions that cause an impact on asset-liability status of a country, in
relation to rest of the world, are recorded in _____account.
a) Capital account
b) Current account
c) Trade account
d) Settlement account

10 Slowdown in global demand, higher global crude oil prices, subdued global trade activity and
geo-political uncertainties took a toll on India’s external sector as the CAD widened to its
highest level since 2012-13. External financing conditions also remained adverse as global
financial conditions tightened amidst global financial markets re-pricing risks on a combination
of global and country-specific factors that sparked off scrambles for safe havens and sell-offs
which led to capital outflows from EMEs including India. Over a greater part of the year 2018-
19, FPIs turned net sellers in the domestic capital market. Along with a sharp fall in trade credit,
overall net capital inflows declined during the year. Consequently, after six consecutive years of
annual accretions, foreign exchange reserves were used to partly finance the CAD.

8|Page 8 October 2021,ZIET BHUBANESWAR

 1. Deficit in current account is met by
a) increasing imports
b) increasing transfer payments to the rest of the world
c) decreasing foreign exchange reserves
d) lending to abroad.
2. Changes in official reserve transactions are recorded in
a) current account
b) capital account
c) revenue account
d) trade account
3. FDI inflows are reflected in
a) credit side of current account
b) debit side of capital account
c) debit side of current account
d) credit side of capital account
4. BOP deficit occurs when

9|Page 8 October 2021,ZIET BHUBANESWAR

 a) Autonomous receipts < autonomous payments
b) Autonomous payments < autonomous receipts
c) Exports of goods > imports of goods
d) Income receipts > Income payment

11 The balance of payments (BoP) record the transactions in goods, services and assets between
residents of a country with the rest of the world for a specified time period typically a year.
There are two main accounts in the BoP – the current account and the capital account.
The current account records exports and imports in goods and services and transfer payments.
The first two items in Table 6.1 record exports and imports of goods. The third item gives the
trade balance which is obtained by subtracting imports of goods from the exports of goods.
When exports exceed imports, there is a trade surplus and when imports exceed exports there is a
trade deficit. In 2012-13, imports exceeded exports leading to a huge trade deficit in India of US
$ 195.6 billion.
Trade in services denoted as invisible trade (because they are not seen to cross national borders)
includes both factor income (net income from compensation of employees and net investment
income, the latter equals, the interest, profits and dividends on our assets abroad minus the
income foreigners earn on assets they own in India) and net non-factor income (shipping,
banking, insurance, tourism, software services, etc.). Transfer payments are receipts which the
residents of a country receive ‘for free’, without having to make any present or future payments
in return.
1. Current account convertibility is
a) It is the freedom of convertibility of domestic currency into foreign currency regardless of
the purpose of conversion.
b) It is the freedom of convertibility of domestic currency into foreign currency and vice a
versa for trade in goods and invisibles.
c) Current account convertibility is applicable only to convert domestic currency into foreign
currency and not the other way round.
d) None of the above.
2. The balance of payment is calculated because
a) To reveal country’s debt status.
b) BOP helps to indicate the country’s currency devaluation.
c) BOP statement helps the government to decide on the fiscal and trade policies.
d) All of the above
3. Current account includes
a) Credits and debits on the trade of merchandise, which includes goods such as raw materials
and manufactured goods that are bought, sold or given away .
b) credits and debits on the trade of merchandise, along with services like tourism etc.
c) Receipts from income-generating assets such as stocks (in the form of dividends).

10 | P a g e 8 October 2021,ZIET BHUBANESWAR

 d) unilateral transfers which are credits that are mostly worker's remittances, which are salaries
sent back into the home country of a national working abroad, as well as foreign aids that are
directly received.
e) All of the above.
4. Balance of Payment (BOP) of a country can be defined as
a) A systematic statement of all economic transactions between different states to estimate the
GST generated from each state.
b) It is the balance of loans to be paid to other countries and organisations like the IMF only.
c) Balance of Payment (BOP) of a country can be defined as a systematic statement of all
economic transactions of a country with the rest of the world during a specific period.
d) All of the above.
5. Which of the following does not form part of current account under balance of payments?
a) Export and import of goods
b) Export and import of services
c) Income receipts and payments
d) Capital receipts and payments

12 The capital account records all international purchases and sales of assets such as money, stocks,
bonds, etc. We note that any transaction resulting in a payment to foreigners is entered as a debit
and is given a negative sign. Any transaction resulting in a receipt from foreigners is entered as a
credit and is given a positive sign.
Can a country have a trade deficit and a current account surplus simultaneously?
Yes, in India, although trade deficit is a recurrent feature every year, for three consecutive years
from 2001-02, 2002-03 to 2003-04, there was a surplus on the current account, to the tune of 0.7,
1.3 and 2.3 per cents of GDP respectively. This is because that earnings from services and
private transfers outweighed the trade deficit.
1. Capital account is a _______ concept.
2. What are the components of balance of payment account?
a) Current account
b) Capital account
c) Both (a) and (b)
d) None of the above
3. Which transactions take place only on capital account?
a) Autonomous
b) Accommodating
c) Compensatory
d) None of the above
4. Which account does not have a direct impact on income, output and employment?
a) Current account
b) Capital account
c) Nominal account
d) Real account
13 Current Account is the record of trade in goods and services and transfer payments. Trade in

11 | P a g e 8 October 2021,ZIET BHUBANESWAR

 goods includes exports and imports of goods. Trade in services includes factor income and non-
factor income transactions. Transfer payments are the receipts which the residents of a country
get for ‘free’, without having to provide any goods or services in return. They consist of gifts,
remittances and grants. They could be given by the government or by private citizens living
abroad.

Buying foreign goods is expenditure from our country and it becomes the income of that foreign
country. Hence, the purchase of foreign goods or imports decreases the domestic demand for
goods and services in our country. Similarly, selling of foreign goods or exports brings income to
our country and adds to the aggregate domestic demand for goods and services in our country.
1. The increase in the aggregate domestic demand for goods and services in our country is due
to:
(a) from exports
(b) Imports
(c) both of the above
(d) not both of the above
2. Trade in services includes ………… income and …………. income transactions. ( Fill the
blank)
3. Current Account is the record of trade in ……... and …..…… and …………….. .

12 | P a g e 8 October 2021,ZIET BHUBANESWAR

ANSWER

CBQ NO Answer
1 1.It is an account that records Trade of visible items, Trade of Invisible Items and
unilateral transfers, current Account of BOP.

2.BOP Capital Account

3.decrease in export

4.visible items
2 1. Balance of trade
2. Both a& b
3. All of these
4. All of these
3 1.B
2.B
3.YES
4 1.A
2.C
3.TRUE
5 (a) Capital account
(b) Debit
(c) debit
6 i. D
ii. A
iii. C
iv. C
v. B
7 i. C
ii. D
iii. B
iv. A
v. A
8 1.Unfavourable
2. Increase

13 | P a g e 8 October 2021,ZIET BHUBANESWAR

9 1. C
2. B
3. B
4. a
10 1. c
2. b
3. d
4. a
11 1. B
2. C
3. E
4. C
5. D
12 I. STOCK
II. D
III. B
IV. B
13 1.from exports
2.factor, non-factor
3.goods, services and transfer payments

PREPIRED BY : PGT ECONOMICS OF BHUBANESWAR, GUWAHATI,

KOLKATA, RANCHI, SILCHAR AND TINSIKIA REGION.
VETTED BY :TINSUKIA REGION

14 | P a g e 8 October 2021,ZIET BHUBANESWAR

 CHAPTER -17-BALANCE OF PAYMENTS ACCOUNT
TRUE AND FALSE QUESTIONS

Question Question Content

No
Q1 Expenditure by the tourists is included in balance of trade.
a) True
b) False

Q2 Current account records all payments to rest of the world as debit.

a) True
b) False

Q3 Bop always balances when official reserves account is a part of capital account.
a) True
b) False

Q4 Financial transactions relate to international sale and purchase of real assets.

a) True
b) False

Q5 Balance of payments records transactions related to goods only.

a) True
b) False

Q6 Services are not visible when they cross the borders.

a) True
b) False

Q7 BOP records the transactions related to goods only.

a) True
b) False

Q8 Financial transactions relate to international sale and purchase of assets only.

a) True
b) False

Q9 Accommodating items are meant to restore BOP balance.

a) True
b) False

Q10 If balance of trade is showing a deficit of Rs.400 Crores and value of imports of goods is
Rs.1100 Crores than the value of exports of goods would be 700 Crores.
a) True
b) False

1|Page 8 October 2021,ZIET BHUBANESWAR

Q 11 Balance of Payments includes only visible items.
a) True
b) False

Q 12 The balance of trade is always positive.

a) True
b) False

Q13 The current account records visible items, invisible items, and unilateral transfers.
a) True
b) False

Q 14 The balance of Payments may be positive or negative.

a) True
b) False

Q 15 Balance of trade is a part of the Balance of Payments.

a) True
b) False

Q 16 Current account of balance of payments account records only exports and imports of
goods and services.
a) True
b) False

Q 17 Accommodating transactions take place only on capital account.

a) True
b) False

Q18 On the current account, merchandise exports and imports of goods are autonomous
transactions.
a) True
b) False

Q19 A deficit in the current account must be settled by a surplus on the capital account.
a) True
b) False

Q 20 Current account records all the actual transactions of goods and services which affect the
income, output and employment of a country.
a) True
b) False

2|Page 8 October 2021,ZIET BHUBANESWAR

Q 21 Current Account is a broader concept as compared to Balance of Trade as current Account
includes Balance of Trade.
a) True
b) False

Q 22 Autonomous transactions are undertaken for profit motive.

a) True
b) False

Q 23 Money sent by NRI to his family members in India will be recorded in debit side of Balance
of Payments of India.
a) True
b) False

Q 24 Current account transactions do not give rise to 'future claims'.

a) True
b) False

Q 25 Balance of Payments records imports and exports of goods only.

a) True
b) False

Q 26 Current account in Balance of Payments records only the exports andimports of goods
and services.
a) True
b) False

Q 27 Borrowings from abroad are recorded in the Capital Account of theBalance of Payments
on the debit side.
a) True
b) False

Q 28 Increase in the official reserves is indicated by a negative sign in the Bop accounts.
a) True
b) False

Q 29 Accommodating items are meant to restore BoP balance.

a) True

3|Page 8 October 2021,ZIET BHUBANESWAR

 b) False

Q 30 Export and import of capital goods is included in the capital account

a) True
b) False

Q 31 There is no difference between balance of trade and balance on current account of

Bop.
a) True
b) False

Q 32 Trade of invisible items is a part of capital account of Bop.

a) True
b) False

Q 33 Borrowing and lending in the international money market is a part of current account
balance of payments.
a) True
b) False

Q 34 Current account balance of payments includes export and import of goods only.
a) True
b) False

Q 35 Current account surplus in balance of payments occurs when export of visible> import of
visible.
a) True
b) False

Q 36 If balance of trade is in deficit, the balance of payment is also in deficit.

a) True
b) False

Q 37 Balance of payments is balanced onlythrough unilateral transfers.

a) True
b) False

4|Page 8 October 2021,ZIET BHUBANESWAR

Q 38 Under Managed Floating Exchange Rate System, Official Reserve Transactions are zero.
a) True
b) False

Q 39 Compensation of employees from rest of the world is a credit component of Bop on

capital account.
a) True
b) False

Q 40 High rate of inflation in the domestic economy causes 'deficit balance of trade'.
a) True
b) False

Q 41 In balance of payments, repayments of loans by Indian government to Japanese

Government will be reflected as credit item.
a) True
b) False

Q 42 Foreign exchange received on account of export of jute will be recorded in capital

account.
a) True
b) False

ANSWER

Question No Answer
Q1 b)False
Q2 a)True
Q3 a)True
Q4 b)False
Q5 b)False
Q6 a)True
Q7 b)False
Q8 b)False
Q9 a)True
Q10 a)True
Q 11 b)False
Q 12 b)False

5|Page 8 October 2021,ZIET BHUBANESWAR

Q13 a)True
Q 14 b)False
Q 15 a)True
Q 16 b)False
Q 17 a)True
Q18 a)True
Q19 a)True
Q 20 a)True
Q 21 a)True
Q 22 a)True
Q 23 b)False
Q 24 a)True
Q 25 b)False
Q 26 b)False
Q 27 b)False
Q 28 a)True
Q 29 a)True
Q 30 b)False
Q 31 b)False
Q 32 b)False
Q 33 b)False
Q 34 b)False
Q 35 b)False
Q 36 b)False
Q 37 b)False
Q 38 b)False
Q 39 b)False
Q 40 b)False
Q 41 b)False
Q 42 b)False

PREPIRED BY : PGT ECONOMICS OF BHUBANESWAR, GUWAHATI,

KOLKATA, RANCHI, SILCHAR AND TINSIKIA REGION.
VETTED BY : TINSUKIA REGION

6|Page 8 October 2021,ZIET BHUBANESWAR