ECONOMICS
BALANCE OF PAYMENTS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A a depreciation of the currency
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B an improvement in the terms of trade
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C an increase in foreign exchange reserves
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D an increase in net holdings of foreign assets
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Detailed explanation-1: -Exports, earnings on investments abroad, and incoming transfer payments (aid and remittances) increase a country’s current account surplus. Imports, foreign investors’ earnings on investments in the country, and outgoing transfer payments lower a country’s current account surplus.
Detailed explanation-2: -Balance of payments surplus occurs when a country’s total exports are higher than its imports. This helps to generate capital to fund its domestic productions.
Detailed explanation-3: -A current account surplus means that the current account has a positive balance of payments. In other words, the exports of a country exceed the imports.
Detailed explanation-4: -Trade deficits and surpluses in the balance of payments A trade surplus exists if a country exports more than it imports. A trade deficit exists if a country exports less than it imports.