IGCSE Economics Paper-1: Specimen Questions with Answers 61 - 62 of 64

Question 61

Question

MCQ▾

The accounts of balance of payment must always balance, because of:

Choices

Choice (4)

a.

BOP is a cash flow statement

b.

It is based on double entry principle

c.

BOP records international transactions

d.

Records flow of foreign exchange between countries.

Answer

b.

Explanation

  • BOP is a statement that systematically presents, statistical data for a specific period (a year or quarter) , and the economic transactions of an economy with the rest of the world.
  • BOP Account follows a double-entry accounting system i.e.. every transaction is presented by a credit and a debit entry, with exact equal values but in opposite sign. It denotes the giving and receiving side of external transaction.

The following table represents the credit and debit side of BOP.

The Following Table Represents the Credit and Debit Side of BOP
CreditDebit
Export of goods and servicesimport of goods and services
Income received from abroadIncome payable abroad
Transfers from abroadTransfers to abroad
Increase in external liabilitiesDecrease in external liabilities
Decrease in assetsIncrease in assets

Question 62

Question

MCQ▾

In balance of payment a debit occurs due to

  • Low imports and high exports
  • High imports and Low exports

Choices

Choice (4)

a.

Only 2 is correct

b.

Only 1 is correct

c.

Question does not provide sufficient data or is vague

d.

None of the above

Answer

b.

Explanation

  • A debit balance in balance of payment occurs because of low imports and high exports and when there are high imports and low exports it shows a credit balance. The balance also depends on the value of the exports and imports.
  • The balanced status of the balance of payment shows, the sum of all credits is identical to the sum of all debits, giving a zero net balance of all entries.
  • While recording an economy՚s transactions with the world, balance of payments accounts are divided into two accounts:
    • Current account- it records transactions in goods, services, primary income, and secondary income.
    • Capital and financial account- records capital transfers, receivable and payable between residents and nonresidents, acquisition or disposal of non-produced, non-financial assets and transactions in financial assets and liabilities, classified according to the functional categories, sectors, instruments, and maturities used for net international financing transactions.

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