1. State whether the following statements are true or false. i) The trade balance is NOT...

1. State whether the following statements are true or false.

i) The trade balance is NOT the most important component of the BOP.

ii) The cross-border buying and selling of gold is included in the CAB.

iii) When a country has a current account deficit, it means the country has accumulated foreign assets in a given period.

iv) Once statistical discrepancies are taken into account, the BOP is always balanced.

Solutions

Expert Solution

i) TRUE. Trade balance is not the most important component of the BOP. It is not even the component of the BOP. The three components are the Current Account, the Capital Account and the Financial Account.

ii) TRUE. The cross-border buying and selling of gold is included in the Current Account Balance (CAB). Gold also is treated like any other good or service.

iii) FALSE. When a country has current account deficit, it means that it also experiences capital inflow. Capital inflow means that the Foreign has accumulated our domestic assets in a given period. Hence, country has not accumulated foreign assets in a given period.

iv) TRUE. Balance of payments is prepared on the principles of double entry bookkeeping. This means that all the debits actually match all the credits in the balance of payments. Therefore, once statistical discrepancies are taken into account, the BOP is always balanced

Rahul Sunny answered 1 year ago

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