CBSE Class 12 Economics Balance of Payments Worksheet

Question. Identify which of the following statements is true?
(a) The flexible exchange rate system gives the government more flexibility to maintain large stocks of foreign exchange reserves.
(b) In the managed floating exchange rate system, the government intervenes to buy and sell foreign currencies.
(c) In the managed floating exchange rate system, the Central Bank intervenes to moderate exchange rate fluctuations.
(d) In the fixed exchange rate system, market forces fix the exchange rate.
Answer. C

Question. Identify which of the following statements is true?
(a) There is no difference between balance of trade and balance on current account of BoP.
(b) Trade of invisible items is a part of capital account of BoP.
(c) Official reserves account indicates reserves of forex with the RBI.
(d) Decrease in demand for foreign currency leads to a rise in exchange rate.
Answer. C

Question. Identify which of the following statement is true :
(a) Overall balance is positive in case of balanced BoP.
(b) Reserve of foreign exchange could be used to balance any deficit in the balance of payments account.
(c) The market is responsible for exchange rate determination under fixed exchange rate.
(d) Portfolio investment is a type of external assistance.
Answer. B

Question. Identify which of the following statement is true :
(a) Current account does not count transfer payments.
(b) Balance of trade does not count services.
(c) Net invisibles is a component of capital account.
(d) Portfolio investment is a type of external assistance.
Answer. B

Question. Identify which of the following statement is true :
(a) Exchange rate under flexible regime do not get affected by exports or imports.
(b) Reserve of foreign exchange is the part of current account of BoP.
(c) A receipt of unilateral transfer from foreign nation is recorded on the debit side of Balance of Payment.
(d) Fixed exchange rates are declared by the government.
Answer. D

Question. Identify which of the following statement is true :
(a) Balance of payment account does not record transactions of capital nature.
(b) Balance of trade is the summation of exports and imports of visible items.
(c) When exports are more than imports, balance of trade account is in deficit.
(d) Balance of payment account includes visible items, invisible items, capital transfer and unilateral transfer.
Answer. D

Question. Identify which of the following statement is true relating to current account balance :
(a) Exports of goods and services are recorded as negative (–) items.
(b) Imports of goods and services are recorded as positive (+) items.
(c) All receipts on account of transfers are recorded as negative (–) items.
(d) Transfer payments are recorded as negative (–) items.
Answer. D

Question. Identify which of the following statement is true :
(a) External assistance is not recorded in Balance of Payment accounts.
(b) The difference between value of exports and imports of goods and services is called trade balance.
(c) Foreign investments are recorded in the capital account of Balance of Payments.
(d) Portfolio investment is a type of external assistance.
Answer. C

Question. Identify which of the following statement is true relating to deficit in balance of payment account :
(a) Payments of the country exceed receipts of the country.
(b) Payments and receipts of the country are balanced.
(c) There is an increase in the official reserves of the country.
(d) Payment of the country are less than receipts of the country.
Answer. A

Question. Consider the following statements :
(1) Devaluation of a currency may promote exports.
(2) Prices of a country’s products in the international market may fall due to devaluation
Which of the statements given above is/are correct?
(a) Only (1)
(b) Only (2)
(c) Both (1) and (2)
(d) Neither (1) nor (2)
Answer. C

Question. Expand FII.
(a) Foreign Investment Institution
(b) Foreign Institution of Investment
(c) Foreign Institutional Investment
(d) Foreign Intelligence Investment
Answer. C

Question. Decrease in the value of domestic currency in terms of foreign currency is…………
(a) appreciation of domestic currency
(b) revaluation of domestic currency
(c) depreciation of domestic currency
(d) none of these
Answer. C

Question. Appreciation of domestic currency encourages
(a) imports
(b) exports
(c) foreign trade
(d) all of these
Answer. A

Question. Balance of payment is an accounting statement that records the economic transactions between:
(a) Resident and non-resident
(b) Resident and rest of the world
(c) Non-resident and rest of the world
(d) None of the above
Answer. B

Question. Economic transactions include:
(a) Visible items
(b) Invisible items
(c) Unilateral transfers
(d) All of the above
Answer. D

Question. Import and export of goods is called:
(a) Invisible trade
(b) Visible trade
(c) Nominal trade
(d) None of the above
Answer. B

Question. Import and export of services is called:
(a) Invisible trade
(b) Visible trade
(c) Nominal trade
(d) None of the above
Answer. A

Question. Surplus in current account arises when:
(a) Credit side is more than debit side
(b) Debit side is more than credit side
(c) Debit side equals to credit side
(d) None of the above
Answer. A

Question. Deficit in capital account occurs when:
(a) Credit side is more than debit side
(b) Debit side is more than credit side
(c) Debit side is equals to credit side
(d) None of the above
Answer. B

Question. Which transactions are the transactions by the Central Bank to maintain the disequilibrium in BOP account?
(a) Autonomous
(b) Accommodating
(c) Official reserves
(d) All of the above
Answer. C

Question. The demand curve for foreign exchange is:
(a) Vertical
(b) Upward sloping
(c) Horizontal
(d) Downward sloping
Answer. D

Question. Currency appreciation occurs when:
(a) increase in the domestic currency price of the foreign currency
(b) decrease inthe price of the domestic currency
(c) increase in the price of the domestic currency
(d) decrease in the domestic currency pice of the foreign currency
Answer. C

Question. Managed floating exchange rate is a system in which the:
(a) the Government allow the exchange rate to determined by market forces
(b) None of the above
(c) the Central Bank allow the exchange rate to determined by market forces
(d) the Central Bank or Government allow the exchange rate to determined by market forces
Answer. D

Question. Exchange rate for currencies is determined by supply and demand in system of:
(a) fixed exchange rate
(b) Flexible exchange rate
(c) Constant
(d) Government regulated
Answer. B

Question. A deficit inbalance of trade indicates:
(a) That the imports of good are greater than the exports
(b) None of the above
(c) That the imports of good are less than the exports
(d) That the imports of good are equal to the exports
Answer. A

Question. The downward sloping demand curve for the foreign exchange reflects:
(a) Direct relationship
(b) Exponential relationship
(c) Inverse relationship
(d) Indirect relationship
Answer. C

Question. The demand curve for foreign exchange is:
(a) Vertical
(b) Upward sloping
(c) Horizontal
(d) Downward sloping
Answer. D

Question. Balance of payment accounting uses which standard of accounting?
(a) Double entry system
(b) Single entry system
(c) Accrual basis system
(d) Cash basis system
Answer. A

Question. 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) debit, capital
(c) credit, capital
(d) debit, current
Answer. A

Question. .............. rate of exchange is that rate which is determined by the supply-demand forces in the foreign exchange market. It is also known as .............. exchange rate.
(a) flexible, free
(b) fixed, floating
(c) fixed, flexible
(d) free, floating
Answer. A

Question. Borrowing of rest of the world would be recorded as................ item in the ......................... account.
(a) credit, capital
(b) debit, capital
(c) credit, current
(d) debit, current
Answer. B

Question. Foreign Direct Invesment in India will be recorded on the ................. side of ..................... account.
(a) debit, current
(b) credit, capital
(c) debit, capital
(d) credit, current
Answer. B

Question. Foreign exchange received from exporting rice will be recorded on the ............... side of ................ account.
(a) debit, current
(b) credit, capital
(c) debit, capital
(d) credit, current
Answer. D

Question. Imports of goods and services in India will be recorded on the ..................... side of ..................... account.
(a) debit, current
(b) debit, capital
(c) credit, current
(d) credit, capital
Answer. A

Question. Repayment of short-term trade credit by India will be recorded on the .................. side of .................. account.
(a) debit, current
(b) credit, capital
(c) debit, capital
(d) credit, current
Answer. C

Question. The difference between the value of a nation’s visible exports and visible import is..........................
(a) Balance of Trade.
(b) Balance of Payments.
(c) Balance of Current Account.
(d) Balance of Capital Account.
Answer. A

Question. Foreign investment entails .................... change in the capital a/c of the county making a investment.
(a) negative
(b) positive
(c) uncertain
(d) none of these
Answer. A

Question. ......................... is a situation when ‘managed floating’ is exercised by Central Bank.
(a) Crawling peg
(b) Spot market
(c) Dirty floating
(d) Non of these
Answer. C

Question. Free trade is based on the principle of ..................... .
(a) Comparative advantage
(b) Comparative scale
(c) Economies of advantage
(d) Production possibility advantage
Answer. A

Question. India has highest foreign debt in the form of .............. .
(a) Commercial borrowing
(b) Trade credit
(c) Gold
(d) NRT deposits
Answer. A

Question. ................... goods are purchased during the year by a firm from another for the purpose of further production / resale.
(a) capital goods
(b) consumption goods
(c) intermediate goods
(d) final goods
Answer. C

Question. ................... is not an export.
(a) Sales of cars abroad
(b) purchase of foreign components
(c) Sales of machine abroad
(d) Sale of financial services overseas
Answer. B

Question. Foreign exchange rate is determined by…………… .
(a) demand for foreign exchange
(b) supply of foreign exchange
(c) both (a) and (b)
(d) none of these
Answer. C

Question. Other things remaining unchanged, when in a country the price of domestic currency rises, national income is………………
(a) likely to fall
(b) likely to rise
(c) both (a) and (b)
(d) not affected
Answer. A

Question. Identify the correct pair of formula from the following column I and II: (Choose the correct alternative)

Alternatives:
(a) A - (i)
(b) B - (ii)
(c) C - (iii)
(d) D - (iv)
Answer. B

Question. Identify the correct pair of statements from the following column I and column II.

Alternatives:
(a) A - (i)
(b) B - (ii)
(c) C - (iii)
(d) D - (iv)
Answer. A

Question. Identify the correct pair of statements from the following column I and column II

Alternatives:
(a) A - (i)
(b) B - (ii)
(c) C - (iii)
(d) D - (iv)
Answer. A

Question. Identify the correct pair from the column I and II.

Alternatives:
(a) A - (i)
(b) B - (ii)
(c) C - (iii)
(d) D - (iv)
Answer. B

Question. Identify the correct pair from the column I and II.

Alternatives:
(a) A - (i)
(b) B - (ii)
(c) C - (iii)
(d) D - (iv)
Answer. C

Question. Identify the correct pair from the column I and II.

Alternatives:
(a) A - (i)
(b) B - (ii)
(c) C - (iii)
(d) D - (iv)
Answer. A

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