True or False 1. Due to improving political situation in Turkey, foreigners begin investing more on...

True or False

1. Due to improving political situation in Turkey, foreigners begin investing more on Turkish stocks and assets. This trend will decrease the financial account balance (less positive if positive or more negative if negative initially).

2. Foreign purchase of US denominated assets is better than US purchase of foreign currency denominated assets if the country is in financial account deficit.

3. Credit item in BoP is measured with negative sign.

Solutions

Expert Solution

Question 1

The answer is: False

Due to improving political situation in Turkey, if the foreigners begin investing more in Turkish stocks and assets. Then this trend will increase the financial account balance. Because it is capital inflow.

The capital from foreigners, whether it is in the form of bonds, shares or any financial assets would increase the financial account balance in the balance of payments of the domestic country. So, if the foreigners begin investing more in Turkish stocks and assets. Then this trend will increase the financial account balance

Question 2
The answer is: True
Foreign purchase of US denominated assets is good compared to US purchase of foreign currency denominated assets if the country is in financial account deficit.

Foreign purchase of US denominated assets would decrease the financial account deficit and would help the country to come out of deficit since it is capital inflow. Whereas, US purchase of foreign currency denominated assets would increase the deficit in the financial account since it is capital outflow. So, foreign purchase of US denominated assets is better than US purchase of foreign currency denominated assets if the country is in financial account deficit.

Question 3
The answer is: False
Credit item in BoP is measured with a positive sign.
Credit item involves inflow of funds into the country. So, it is measured with positive(+) sign. Whereas debit item involves an outflow of funds from the country. So, it is measured with negative (-) sign.

Rahul Sunny answered 1 year ago

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