Question

1. Negative current account balances are usually associated with

1. a shrinking of the international investment position.
2. an improvement of the international investment position.
3. a decrease in external debt.
4. an increase in external debt.

2. Which of the following is FALSE about the Highly Indebted Poor Countries (HIPC) initiative?

1. Most of the countries included are in sub-Saharan Africa.
2. Countries qualify for debt relief partly based on their level of poverty.
3. Countries do not have to have established a past track record of economic reform in order to qualify as long as they make future commitments.
4. External debt levels must be high relative to exports in order to qualify.

3. Which of the following is an example of foreign direct investment?

1. Toyota builds an automobile plant in Ohio.
2. The Bank of Japan buys dollars.
3. A citizen of Japan buys stock in Microsoft.
4. A citizen of Japan buys a U.S. government bond.

Answer 1

Question 1. Negative current account balances are usually associated with

Answer: Option d). An increase in external debt.

Reason: The current account is one half of the balance of payments, the other half being the capital or financial account. A positive current account balance indicates that the nation is a net lender to the rest of the world, while a negative current account balance indicates that it is a net borrower.

Question 2 Which of the following is FALSE about the Highly Indebted Poor Countries (HIPC) initiative?

Answer: Option c). Countries do not have to have established a past track record of economic reform in order to qualify as long as they make future commitments.

Reason:

To be considered for HIPC Initiative assistance, a country must fulfill the following four conditions:

• Be eligible to borrow from the World Bank’s International Development Agency, which provides interest-free loans and grants to the world’s poorest countries, and from the IMF’s Poverty Reduction and Growth Trust, which provides loans to low-income countries at subsidized rates;
• Face an unsustainable debt burden that cannot be addressed through traditional debt relief mechanisms;
• Have established a track record of reform and sound policies through IMF- and World Bank–supported programs ; and
• Have developed a Poverty Reduction Strategy Paper (PRSP) through a broad-based participatory process in the country.

Question 3. Which of the following is an example of foreign direct investment?

Answer: Option a). Toyota builds an automobile plant in Ohio.

Reason: A foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country.