QUESTION: 1221

When a domestic resident purchases a foreign stock directly on the foreign stock exchange, the transaction is entered as a ________ in the BOP account.

deficit
surplus
credit
debit

Answer(s): D

Explanation:

In BOP accounting, by convention:
1. Any inflow of domestic currency represents a credit and any outflow of domestic currency represents a debit on the BOP account.
2. Any inflow of foreign currency represents a debit and any outflow of foreign currency represents a credit on the BOP account.
Thence, direct purchase of a foreign stock, which represent an outflow of domestic currency, is treated as a debit in the BOP account.

Reveal Solution Next Question

QUESTION: 1222

If high-yield investment opportunities attract capital from abroad and lead to a capital account surplus, then the:

nation will also experience a balance of trade surplus.
nation must run a current account surplus under a pure flexible exchange rate system.
nation's currency must depreciate.
nation must run a current account deficit under a pure flexible exchange rate system.
nation's currency must appreciate.

Answer(s): D

Explanation:

If a nation is experiencing a surplus on its capital account balance, it must experience an offsetting deficit on its current account and vice versa. By definition, the balance of payments must be in balance so that the capital account offsets the current account.

Reveal Solution Next Question

QUESTION: 1223

If a restrictive fiscal policy places downward pressure on real interest rates, we would expect

all of these answers are correct.
inflationary pressures to increase.
an increase in the dollar.
an outflow of capital.
an increase in the budget deficit.

Answer(s): D

Explanation:

Investors facing a declining real interest rate would liquidate their assets and move their capital elsewhere in search of a higher yield. The consequence would be a capital outflow from the country.

Reveal Solution Next Question

QUESTION: 1224

The flow of money for the purpose of taking advantage of a covered interest differential is known as ________.

an outright swap
covered interest differential
the swap rate
covered interest arbitrage
interest rate parity

Answer(s): D

Explanation:

The flow of money for the purpose of taking advantage of a covered interest differential is known as covered interest arbitrage'

Reveal Solution Next Question

Free CFA-Level-I Exam Braindumps (page: 306)

QUESTION: 1221

Explanation:

QUESTION: 1222

Explanation:

QUESTION: 1223

Explanation:

QUESTION: 1224

Explanation: