Test: Balance of Payments - Bank Exams MCQ

Visible items in the Balance of Payments refer to physical goods that can be seen and measured. The import of LCD screens from Malaysia is a tangible product, making it a visible item, whereas services and remittances are classified as invisible.

The Balance of Trade (BOT) specifically measures the difference between the value of a country's exports of goods and its imports of goods. A positive BOT indicates a surplus, while a negative BOT indicates a deficit.

Increased foreign direct investment typically leads to a positive inflow in the capital account, which helps to balance any current account deficits. In contrast, high inflation, political instability, and changing consumer preferences can disrupt the balance, leading to a disequilibrium.

"Errors and omissions" refer to adjustments necessary to account for transactions that may not have been recorded accurately or completely. These are included as balancing items in the BOP to ensure that the accounts are balanced, reflecting the complexities of international transactions.

The current account of the Balance of Payments includes unilateral transfers, which are one-sided transactions that do not require reciprocal payments, such as gifts and personal remittances. This distinguishes it from the capital account, which deals with investments and loans.

The credit side of the Balance of Payments records inflows of foreign exchange. The export of jute to Sri Lanka generates income for the country, thus it is recorded on the credit side. In contrast, imports and repayments result in outflows, recorded on the debit side.

Autonomous items in the Balance of Payments are transactions that occur independently of the current state of the BOP. These transactions are driven by market forces rather than government intervention, and they can lead to surpluses or deficits based on their nature.

A surplus in the capital account indicates that the inflows of foreign capital (such as investments and loans) exceed the outflows. This is often used to finance a deficit in the current account, demonstrating a net positive movement of capital into the country.

In the Balance of Payments, increases in foreign exchange reserves (purchases of foreign currency) are recorded as debit items, while decreases (sales of foreign currency) are shown as credit items. This reflects the central bank's activities concerning foreign exchange management.

The Balance of Payments is a comprehensive statement that records all economic transactions of a given country with the rest of the world within a specified accounting year. This includes both inflows and outflows of foreign exchange, thus providing a complete picture of a country's economic interactions globally.