Important MCQs of Balance of Payments chapter Class 12

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Looking for Multiple choice questions (MCQs) of Balance of Payments chapter of Macroeconomics class 12

I have a collection of 100 Mulitple choice questions from the BoP chapter with answers with valid reasons.

Multiple choice question of Balance of Payments chapter of class 12

Let’s practice.

1. Balance of Payments of a country is a statement that records:-

a) Sources of Foreign Exchange
b) Uses of Foreign Exchange
c) Both a) and b)
d) None of the above

Ans:- c)
Explanation:- Balance of Payments is an accounting statement that records the foreign exchange transactions of a country with the rest of the world

2. The categories of transactions that are included in current account of Balance of Payments are:-

a) Exports and imports of goods
b) (a) + Exports and Imports of services
c) (b) + Income from and to abroad
d) (c) + Transfers from and to abroad

Ans – d)
Explanation:- Current Account of BoP records 1) export and imports of goods, services, income from and to abroad, unilateral transfers from and to abroad

3. Balance of Trade equals:-

a) Exports less imports
b) Exports of goods less imports of goods
c) Exports of services less imports of services
d) None of the above

Ans – b)
Explanation:- Balance of Trade is the part of Current account of BoP. It is the differnce between Export and Import of physical goods

4. The categories of transactions that are included in the capital account of the Balance of Payments are:-

a) Investments from and to abroad
b) Borrowings and lendings from and to abroad
c) Changes in foreign exchange reserves
d) All the above

Ans – d)
Explanation:- 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.

5. The measurement of Balance of Payments deficit is based on:-

a) Autonomous transactions
b) Accommodating transactions
c) Current account transactions
d) Capital account transactions

Ans – a)
Explanation:- Autonomous transactions are done for profit motive. Such transactions are the main cause of deficit in BoP.

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6. Choose the correct statement from given below:

a) Balance of trade records the exports and imports of invisible items.
b) A surplus in BoT can rectify the deficit in Bop.
c) Accommodating items are only recorded in the capital account of the BOP.
d) Import of machinery will be recorded in the capital account of BoP.

Ans – c)
Explanation:- Accommodating transactionsa are only recorded in Capital Account. Main motive of such transactions are to settle the surplus and deficit of BoP due to autonomous transactions.

7.Choose the correct statement from given below.

a) Balance of Trade is a component of the capital account of Balance of Payments.
b) Floating exchange rate is used to stabilize the price of foreign currency.
c) Increase in the supply of foreign exchange results in a fall in its price
d) Rise in the exchange rate leads to the revaluation of the currency.

Ans – c)
Explanation:- Higher is the supply of foreign exchange, lesser is the foreign exchange rate.

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8. Current accounts records all payments to rest of the world as_________and all receipts from rest of the world as______

a) Credit, Debit
b) Debit, Credit
c) Debit, Debit
d) Credit, Credit

Ans – b)
Explanation:- Foreign exchange inflow is recorded on the credit side. The outflow of foreign exchange is recorded at the debit side of the BoP.

9. Balance on invisible trade is equal to

a) Export of goods – Import of goods
b) Export of services – Import of services
c) Import of goods – Export of goods
d) Import of services – Export of goods

Ans – b)
Explanation:- Invisible trade means trade of intangible goods like services

10. If value of visible exports is greater than the value of invisible imports, the balance relates to

a) Current account Bop
b) Trade Deficit
c) Capital account BoP
d) Can’t be determined

Ans – d)
Explanation:- Only visible exports are compared with visible imports and invisible exports are compared to invisible imports.

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11. Balance of trade is a__________concept as compared to balance of payments.

a) narrower
b) broader
c) similar
d) None of the above

Ans – a)

Explanation:- Balance of trade is the difference between exports and imports of visible goods. It is just a part of current account

12. If trade deficit is ₹ 1500 crores and import of goods are ₹ 3500 crores, value of export of goods will be ₹ 2000 crores?

a) True
b) False
c) Partially true
d) Can’t be predicted

Ans – a)

Explanation:- Trade deficit = Imports of goods – Exports of goods

13. Trade deficit refers to the situation where

a) Export of goods is more than the import of goods
b) export of goods is less than the import of goods
c) export of services is more than the import of services
d) export of services is less than the import of services

Ans – b)

Explanation:- When exports of goods is less than the imports of goods. it is the situation of Trade Deficit.

14. Uni-lateral transfers are included in

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

Ans – a)

Explanation:- Unilateral transfers are the part of invisible sections of Current account of BoP.

15. An Indian real estate company received rent from google in New York. This transaction would be recorded on____________side of_____________account.

a) credit, current
b) debit, capital
c) credit, capital
d) debit, current

Ans – a)

Explanation:- It is an income out of Investment. It is recorded as income receipts at credit side under invisible trade in current account

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16. A company located in India receives a loan from a company located abroad. How is this
transaction 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

Ans – c)

Explanation:- It is financial transaction and increases the liabilities

17. An Indian Company located in India invests in a company located abroad. This transaction is entered in India’s Balance of Payments Account on:-

a) Credit side of current account
b) Debit side of current account
c) Credit side of Capital account
d) Debit side of Capital account

Ans – d)

Explanation:- It is financial transaction and increases the assets of a country in rest of the world and results in outflow of foreign exchange

18. Foreign Exchange Transactions which are independent of other transactions in the Balance
of Payments Account are called:

a) Current transactions
b) Capital transactions
c) Autonomous transactions
d) Accommodating transactions

Ans – c)

Explanation:- Autonomous transactions are the transactions that are not influenced by other foreign exchange transactions. For example an Indian company wants to invest in USA rest state market.

19. 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

Ans – d)

Explanation:- Accommodating transactions are those that are undertaken as a consequence of the autonomous transactions

20. Which of the following statements is not true?

a) Borrowings from the Asia Development Bank by the government is an accommodating
transaction.
b) Loans given to Sri Lanka by the government are an accommodating transaction.
c) Buying of machinery from Japan is an accommodating transaction
d) Borrowing from the public is an accommodating transaction.

Ans – c)

Explanation:- Autonomous items refers to those Balance of Payment (BoP0 transactions which are undertaken for profit.

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21. Who out of the following is included in “Residents” in BoP transactions?

a) Firms
b) Foreign military personnel
c) Government agencies
d) Individuals

Ans – a),c),d)

Explanation:- Here residents means normal residents who has economic interest in the country

22. An accounting statement that provides a systematic record of all the economic transactions, between residents of a country and the rest of the world is________

a) Balance of Payments
b) Balance of Trade
c) Government Budget
d) None of these

Ans – a)

Explanation:- BoP is the accounting statement that records the foreign exchange transactions of a country with the rest of the world.

23. Balance of Payments is a___________Concept.

a) Stock
b) Flow
c) Both a) and b)
d) Neither a) nor b)

Ans – b)

Explanation:- BoP is prepared for a fiscal (accounting) year for 12 months.

24. Inflow of foreign exchange is recorded on the_________side.

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

Ans – a),c),d)

Explanation:- Credit side of BoP records the inflow of foreign exchagne.

25. When receipts of foreign exchange are more than payments of foreign exchange, BOP is:

a) Balanced
b) Surplus
c) Deficit
d) None of these

Ans – b),c),d)

Explanation:- When receipts of foreign exchange are more than payments. BoP results in surplus.

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26. Unilateral Transfers are also known as:

a) Bilateral Transfers
b) One-way Transfers
c) Unrequited Transfers
d) Neither a) nor b)

Ans – b)

Explanation:- Unilateral transfers are one way transactions. where one person does not receive anyting in return from another person.

27. Balance on ‘Balance of Trade’ can be:

a) Surplus
b) Balanced
c) Deficit
d) Either a) or b) or c)

Ans – d)

Explanation:- Balance of trade is the difference between exports of goods and imports of goods. exports can be more, less and equal to imports of goods

28. Which of the following is a component of the Balance of Payment?

a) Current Account
b) Capital Account
c) Nominal Account
d) Real Account

Ans – a),b)

Explanation:-

29. Export and import of goods is also known as:

a) Indivisible Trade
b) Visible Trade
c) One-sided Transactions
d) Unrequited transfers

Ans – b)

Explanation:-

30. __________refers to the difference between exports and imports of visible items.

a) Balance of Payments
b) Balance of Trade
c) Both a) and b)
d) Neither a) nor b)

Ans – b)

Explanation:-

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31. Autonomous transactions take place on

a) Real Account
b) Capital Account
c) Current Account
d) None of these

Ans – b), c)

Explanation:-

32. ____________transactions are undertaken to cover the deficit or surplus in autonomous transactions.

a) current account
b) current account
c) Accommodating
d) None of these

Ans – c)

Explanation:-

33. ________is the difference between value of goods sold to the rest of the world and value of goods imported from rest of the world.

a) Balance of Payment
b) Balance of trade
c) Balance of current account
d) Balance of capital account

Ans – b)

Explanation:-

34. Gifts and remittances to abroad are recorded on the:

a) Credit side of current Account
b) Debit side of Capital Account
c) Debit side of current Account
d) Credi side of Capital Account

Ans – c)

Explanation:-

35. Export of the Machinery recorded on the:

a) Debit side of Current Account
b) Credit side of Current Account
c) Credit side of Capital Account
d) Debit side of capital Account

Ans – b)

Explanation:-

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36. Surplus in BoP arises when

a) Autonomous Payments > Autonomous Receipts
b) Accommodating Receipts > Accommodating Payments
c) Accommodating Payments > Accommodating Receipts
d) Autonomous Receipts > Autonomous Payments

Ans – d)

Explanation:-

37. Balance of Trade is also known as:

a) Balance of Visible Trade
b) Balance of Payments
c) Trade Balance
d) None of these

Ans – a)

Explanation:-

38. Import of 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

Ans – a)

Explanation:-

39. Foreign Exchange transactions are dependent on other foreign exchange transactions are called:

a) Current Account Transactions
b) Capital Account Transactions
c) Autonomous Transactions
d) Accommodating Transaction

Ans – d)

Explanation:-

40. Foreign Exchange transactions which are independent of other transactions in the Balance of Payments Account are called:

a) Current Transactions
b) Capital Transactions
c) Autonomous Transactions
d) Accommodating Transactions

Ans – c)

Explanation:-

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41. A company located in India receives a loan from a company located abroad. How is this transaction 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

Ans – c)

Explanation:-

42. Balance of Payments ‘deficit’ is the excess of:

a) Current account payments over current account receipts
b) Capital account payments over capital receipts
c) Autonomous payments over autonomous receipts
d) Accommodating payments over accomodating receipts

Ans – c)
Explanation:-

43. “Unilateral Transfers’ are also known as:

a) One-way transfers
b) Bilateral transfers
c) Both a) and b)
d) Neither a) nor b)

Ans – a)
Explanation:-

44. If Japanese import more goods from India:

a) India’s BoP will improve
b) Japan’s BoP will deteriorate
c) India’s BoP will deteriorate
d) Both a) and b)

Ans – d)
Explanation:-

45. Autonomous transactions take place on

a) Capital Account
b) Current Account
c) Both a) and b)
d) None of these

Ans – c)
Explanation:-

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46. Which one of the following is not recorded in the capital account of BoP?

a) Equity Capital
b) Gifts, Remittances, and grants
c) Government aid
d) Offshore funds

Ans – b)
Explanation:-

47. Measures to improve the adverse balance of payment include:

a) Currency devaluation
b) Import substitution
c) Exchange control
d) All of the above

Ans – d)
Explanation:-

48. Identify the correct statement.

a) Balance of Trade is the difference between export and import of goods
and services
b) Repayment of the loan is an item of the current account.
c) Increase in supply of foreign exchange appreciates the domestic currency
d) Depreciation of currency is used under a fixed exchange rate system.

Ans – c)
Explanation:-

49. Identify the correct statement.

a) NRI deposits are not the items of capital account of BoP.
b) BoP is always balanced when accomodating items are reflected as a part
of capital account
c) BoT includes services also
d) Autonomous items help in balancing the BoP

Ans – b)
Explanation:-

50. Decrease in foreign exchange reserve will be recorded on the:

a) Credit side of BoP
b) Debit side of BoP
c) Not added in BoP
d) Any side

Ans – a)
Explanation:-

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51. Borrowings from IMF is a part of:

a) Current Account
b) Capital Account
c) Both a) and b)
d) None of these

Ans – b)
Explanation:-

52. Surplus in Balance of Payment (BoP) arises when:

a) Autonomous payments > Autonomous receipts
b) Accommodating receipts > Accommodating payments
c) Accommodating payments > Accommodating receipts
d) Autonomous receipts > Autonomous payments

Ans – d)
Explanation:-

53. Export of Machinery is recorded on the:

a) debit side of capital account
b) credit side of current account
c) credit side of capital account
d) debit side of capital account

Ans – b)
Explanation:-

54. Which of the following items raises the supply of foreign exchange?

a) Import of goods from china
b) Indian students going to USA for MBA
c) Donation of ₹50 million received from Microsoft
d) Purchase of land in England

Ans – c)
Explanation:-

55. Which one is the invisible item of Balance of Payment?

a) Banking
b) Shipping
c) Communication
d) All of these

Ans – d)
Explanation:-

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56. Which items are included in the Balance of Payments?

a) Visible Items
b) Invisible Items
c) Capital Transfers
d) All the above

Ans – d)
Explanation:-

57. When there is unfavourable balance of trade?

a) X>M
b) X = M
c) X<M
d) None of these

Ans – c)
Explanation:-

58. Trade of visible items between the countries is known as________

a) Balance of Payment
b) Blanance of Trade
c) Deficit Balance
d) All of these

Ans – b)
Explanation:-

59. ‘Make in India’ will increase the balance of:

a) Debit side of BoP
b) Credit side of BoP
c) Both of these
d) None of these

Ans – b)
Explanation:-

60. Investment abrod in case of surplus BoP is an example of:

a) Autonomous transaction
b) Accommodating transaction
c) Both a) and b)
d) Neither a) nor b)

Ans – a)
Explanation:-

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61. Export of capital goods is an:

a) Autonomous item
b) Accommodating Item
c) Both autonomous and accommodating
d) Neither autonomous nor accommodating

Ans – a)
Explanation:-

62. Which of the following statements is false?

a) Current account of BoP records export and import of goods and services only.
b) Foreign investments are also part of BoT
c) Import of Machinery is the component of capital account of BoP
d) All of the above

Ans – d)
Explanation:-

63. Borrowing from IMF is a part of:

a) Current Account
b) Capital Account
c) Both a) and b)
d) None of these

Ans – b)
Explanation:-

64. Which of the following is a component of capital account of balance of payment account?

a) Foreign investment
b) Foreign loans
c) Monetary movements
d) All of these

Ans – d)
Explanation:-

65. Unilateral are a part of:

a) Capital Account
b) Current Account
c) Balance of Trade Account
d) Balance of Payment Account and Current Account

Ans – d)
Explanation:-

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66. A company located in India receives a loan from a company located abroad. How is this transaction recorded in India’s baance 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

Ans – c)
Explanation:-

67. Foreign exchange transactions which are independent of other transactions in the Balance of Payments accounts are called:

a) Current transactions
b) Capital transactions
c) Autonomous transactions
d) Accommodating transactions

Ans – c)
Explanation:-

68. 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

Ans – d)
Explanation:-

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