India'S Foreign Trade Policy in Business Environment And International Business : Practice MCQ Questions & Answers with Explanations

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Business Environment And International BusinessEasyIndia'S Foreign Trade PolicyBalance Of Payments (BOP)

Which of the following statements is correct regarding the Balance of Payments (BOP)?

BOP always shows a surplus in developing countries.

BOP records only trade in goods and services.

BOP must always balance when all accounts are accurately recorded.

A current account deficit always indicates economic weakness.

View Answer

Correct Answer: C — BOP must always balance when all accounts are accurately recorded.

Explanation:

The correct answer is C: BOP must always balance when all accounts are accurately recorded.

The BOP is a double-entry accounting system. Every transaction appears as both a credit and a debit. While individual accounts (current, capital, financial) may show surpluses or deficits, the overall BOP balances when all components are correctly accounted for.

Business Environment And International BusinessEasyIndia'S Foreign Trade PolicyBalance Of Payments (BOP)

Which of the following is NOT a component of the current account of the Balance of Payments?

Trade in goods

Trade in services

Unilateral transfers

Foreign direct investment

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Correct Answer: D — Foreign direct investment

Explanation:

The correct answer is D: Foreign direct investment.

Foreign direct investment (FDI) is a component of the capital/financial account, not the current account. The current account includes trade in goods (visible trade), trade in services (invisible trade), and unilateral transfers such as remittances and foreign aid.

Business Environment And International BusinessEasyIndia'S Foreign Trade PolicyBalance Of Payments (BOP)

Which of the following statements is INCORRECT?

When the real exchange rate is one, the countries are said to be in purchasing power parity.

Nominal Exchange Rate is the price of one unit of foreign currency in terms of domestic currency.

When exports exceed imports, there is a trade deficit.

The Balance of Payments records a country's transactions with the rest of the world.

View Answer

Correct Answer: C — When exports exceed imports, there is a trade deficit.

Explanation:

The correct answer is C: When exports exceed imports, there is a trade deficit.

This is incorrect — when exports exceed imports, a country has a trade surplus, not a deficit. A trade deficit occurs when imports exceed exports. A trade surplus indicates a country sells more to the world than it buys, while a trade deficit means the opposite.

Business Environment And International BusinessEasyIndia'S Foreign Trade PolicyBalance Of Payments (BOP)

Which of the following statements is correct?

Balance of trade is a part of balance of payment.

Trade in goods and services and net transfers result in capital account surplus.

When exports exceed imports, there is a trade deficit.

Any transaction resulting in a receipt from foreigners is entered as a debit and is given a negative sign in the capital account.

View Answer

Correct Answer: A — Balance of trade is a part of balance of payment.

Explanation:

The correct answer is A: Balance of trade is a part of the balance of payment.

The Balance of Trade (BOT) forms part of the current account within the Balance of Payments (BOP). BOT measures the difference between a country's exports and imports of goods and services. If exports exceed imports, it is a trade surplus; if imports exceed exports, it is a trade deficit. BOP is broader, encompassing the current account (including BOT), capital account, and financial account.