Scanner - Balance Of Payment, (2014 - 2018) | Crash Course of Macro Economics -Class 12 - Commerce PDF Download

SAMPLE PAPER 2014-15 & 15-16 & 16-17

(Q1) What is meant by “balance of payment” account ? Distinguish between the “balance on current account” and “balance of trade” account. In which account would remittances from family members from abroad be accounted ? (4M)

Ans: Balance of payment account records the inflows and outflows of foreign exchange of a country during a period of time.‘Balance of Trade’ is the difference between exports of goods and imports of goods i.e. between visible inflows and visible outflows of foreign exchange. ‘Balance on current account’ is the difference between the sum of both visible and invisible (Service, income and transfers) inflows and outflows of foreign currency. Remittances from family members from abroad is accounted for under unilateral transfers of the current account.   (1M)

(Q2) What is meant by ‘official reserve transactions’? Discuss their importance in Balance of Payments.   (4M)

Ans: Transactions by a central bank that cause changes in its official reserves. 

These are usually purchases or sales of its own currency in the exchange market in exchange for foreign currencies or other foreign currency denominated assets.

 They may be Autonomous Receipts and Autonomous Payments, disequilibrium between which may occur as deficit/surplus in balance of payment.

(Q3) Define Balance of Payments. Discuss briefly the components of current account.  (4)

Ans: Balance of payments is defined as the statement of accounts of a country’s                inflows and outflows of foreign exchange in a fiscal year. (1)

Components of Current Account:

(1) Visibles : refer to the merchandise/goods exported from or imported by a country. Exports which results inflows for the country are placed on the credit side whereas Imports are placed on the debit side as they result into outflow of foreign exchange from the country.   (1 ½ )

(2) Invisibles : refer to the different types of services and transfers that take place between nations. They give rise to monetary receipts and payments for the nation.                            (1 ½ )

(Q4) Where is ‘borrowings from abroad’ recorded in the Balance of Payments Accounts? Give reason .(3M)

Ans: ‘Borrowings from abroad’ is recorded in the ‘capital account’ of BOP account because it increases international liability of the country.(11/2M)

 It is recorded on the credits side because it brings in foreign exchange into the country.

(Q5) State true or false

(a) Excess of foreign exchange receipts over foreign exchange payments on account of accommodating transactions equals deficit in the balance of payments

(b) Export and Import of machines are recorded in capital account of the BOP 

(c) Foreign investment are recorded in the capital account of BOP 

Ans:  F , F, T 

CBSE  2014  

(Q1) Distinguish between ‘autonomous’ and ‘accommodating’ BOP transactions.

(Q2) What is current account deficit in BOP ?

Ans: When foreign exchange receipts in the current account fall short of foreign exchange payments, it is called current account deficit. 

(Q3) Distinguish between balance of trade and balance of current account ?

Ans: Exports of goods less imports of goods refers to balance of trade. 

Adding excess of inflows over the outflows on account of invisibles to the balance of trade is called balance on current account. 

(Q4) Name the main components of current account of BOP account .What does a deficit in current account indicates ? 

CBSE  2015

(Q1) Where will sale of machinery to abroad be recorded in BOP accounts ? Give reasons ?

Ans: Current Account , Export of Good , Credit side

(Q2) Giving reasons explain where charity to foreign countries is recorded in the BOP ?

Ans: Current Account , Invisible (transfer payment ) , Debit  side

(Q3) State true or false with reason 

(a) Profit received from investments abroad is recorded Capital Account

(b) Import of machines is recorded in current account     

Ans: (a) False, it is recorded in current account as it neither affects foreign exchange assets nor foreign exchange liabilities.                

(b) True, all imports and exports of goods are recorded in trade account which is a part of current account, because it is simply import/export of a good.

(Q4) Distinguish between autonomous and accommodating transactions of balance of payments account. Explain the significance of this distinction                (4)

Ans: Autonomous transactions are made independently of other transactions in balance of payments. Accommodating transactions are made to cover up deficit or surplus in autonomous transactions .The significance of distinction is that deficit / surplus in balance of payments equals deficit/ surplus in autonomous transactions only.  (2M)                

CBSE  2016

(Q1) Foreign exchange transactions which are independent of other transactions in the       Balance of Payments Account are called : (Choose the correct alternative)        (1M) 

(a) Current transactions
(b) Capital transactions

(c) Autonomous transactions
(d) Accommodating transactions   
Ans: (c) 

(Q2) Foreign exchange transactions dependent of other transactions in the Balance of         Payments Account are called : (Choose the correct alternative)(1M) 

(a) Current transactions
(b) Capital transactions

(c) Autonomous transactions 
(d) Accommodating transactions
Ans: (d)

(Q3) BOP “deficit” is the excess of 

(a) Current account payments over current account receipts 

(b) Capital account  payments over capital account receipts 

(c) Autonomous payments over autonomous receipts 

(d) Accommodating payments over accommodating receipts

Ans: (c)

(Q4) Indian investors lend abroad. Answer the following questions :            (6M)

(a) In which sub-account and on which side of the Balance of Payments Account such lending is recorded ? Give reasons.

(b) Explain the impact of this lending on market exchange rate.  

Ans: (a) It will be recorded in the capital account of the BOP a/c because it leads to creation of foreign exchange assets .

Foreign investment will be recorded on the debit side because it leads to outflow of foreign exchange.

(b) It incresaes the demand of foreign exchange . Supply remaining unchanged ,                 exchange rate may rise  

(Q5) (a) In which sub-account and on which side of balance of payments account will foreign investments in India be recorded ? Give reasons. (3+3M)

(b) What will be the effect of foreign investments in India on exchange rate ? Explain.

Ans: (a) It will be recorded in the capital account of the BOP a/c because these give rise to foreign exchange liability 

Foreign investment will be recorded on the credit side because these bring in foreign exchange to the economy .

(b) It adds to the supply of foreign exchange . Demand remaining unchanged , it brings downward influence on exchange rate. 

CBSE  2017

(Q1) Distinguish
(a) between current account and capital account, and 

(b) between autonomous transactions and accommodating transactions of balance of payments account. (6M)

Ans: (a) Current account records exports and imports of goods and services and                   transfer payments whereas capital account records borrowings and lending to and from abroad, investments to and from abroad and changes in foreign exchange reserves.  (3M)

(b) Transactions made independent of the state of balance of payments are called                 autonomous transaction whereas transactions made on account of the state of balance of   payments are called accommodating transactions.  (3M)

(Q2) What is meant by ‘official reserve transactions’ ?  Discuss their importance in Balance of Payments. 

Ans: The transactions carried on by monetary authorities of a country, which causes changes in official reserves are termed as official reserve transactions      

Autonomous receipts and autonomous payments give rise to either deficit or surplus on      balance of payments. The central bank may finance a deficit by :    

(a) reducing reserves of foreign currency    

(b) by borrowing from the IMF or monetary authorities    

This will be shown as decrease in reserves.The central bank may use surplus to purchase  foreign securities, foreign currency, gold etc. which may result in increase in reserves of the nation.

(Q3) Give the meaning of balance of payments 

(Q4) What is meant by trade deficit ?

(Q5) An Indian company located in India invests in a company located abroad. This  transaction is entered in India’s balance of payments account on : 

(a) credit side of current account
(b) debit side of current account

(c) credit side of capital account
(d) debit side of capital account

Ans: (d) 

CBSE  2018

(Q1)  Explain the concept of ‘deficit’ in balance of payments 

Previous C.B.S.E & N.C.E.R.T QUESTION ’S 

(Q1) State any four items each of current and capital account of BOP. 

(Q2) Distinguish between current and capital account of BOP account ? Mention any two  transaction of capital account ?

(Q3) Distinguish between current account and capital account of balance of payment account. Is import of machinery recorded in current account or capital account ?     

(Q4) When will there be a surplus in balance of trade ?

(Q5) Which two transactions determine Balance of Trade or Merchandise?

(Q6) What is difference between value of export of goods and value of import of goods called ?

(Q7) Distinguish between visible and invisible trade ? Give two example of each 

(Q8) What does BOP account record ?

(Q9) What is balance of visible item in BOP called ?

(Q10) BOT (merchandise) is - 400 cr and value of export is 300 cr . Find value of Import.

(Q11) BOT (merchandise) deficit is 5000 cr and value of import is 9000 cr . Find value of export.

(Q12) BOT (merchandise) deficit is 300 cr and value of export is 500 cr . Find value of Import.

(Q13) State the nature of transactions that are recorded in current account of the B.O.P ?