ECONOMICS (CBSE/UGC NET)

ECONOMICS

BALANCE OF TRADE

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

BMW pays $1 million to a U.S. shipper for transporting cars from Germany to the United States. How does this affect the U.S. balance of payments?

A	credit
B	debit
C	Either A or B
D	None of the above

Explanation:

Detailed explanation-1: -Elements of a Balance of Payment. There are three components of the balance of payment viz current account, capital account, and financial account. The total of the current account must balance with the total of capital and financial accounts in ideal situations.

Detailed explanation-2: -The balance of trade (which reflects higher or lower demand for a currency) can affect currency exchange rates. A country with a high demand for its goods tends to export more than it imports, increasing demand for its currency. A country that imports more than it exports will have less demand for its currency.

Detailed explanation-3: -The balance of payments (BOP) is the method by which countries measure all of the international monetary transactions within a certain period. The BOP consists of three main accounts: the current account, the capital account, and the financial account.

Detailed explanation-4: -Current account. Financial account. Capital account. Decision-making. Developing trade policies. Establishing fiscal objectives. Implementing growth strategies. Analyzing deficits.

There is 1 question to complete.