1. Which of the following is not a difference between portfolio capital flows an
ID: 1189460 • Letter: 1
Question
1. Which of the following is not a difference between portfolio capital flows and investment capital (FDI) flows?
Select one:
a. Portfolio capital flows add to the domestic capital stock and is part of GDP of the investing country.
b. Investment flows tend to be more illiquid.
c. Portfolio investment tends to use funds with a shorter time horizon.
d. Sometimes portfolio investment can move in or out of a nation extremely quickly.
2. Which of the following represents direct foreign investment?
Select one:
a. A deposit that an American tourist makes at a Swiss bank to open an account
b. An American hedge fund buys Russian government bonds.
c. A purchase by an Italian company of Microsoft stock on the New York Stock Exchange
d. Intel moves part of its US production to a plant in Malaysia.
3. Russia imports 5 billion Rubles of goods and exports 7 billion rubles of goods. At the same time, Russia imports 4 billion rubles of services, and Russia makes a 2 billion Ruble net unilateral transfer to Albania. Net Foreign Investment Income. Russia's current account equals
Select one:
a. - 4 billion Rubles.
b. -6 billion Rubles.
c. 6 billion Rubles.
d. 4 billion Rubles.
4. Which of the following are recorded as credits, in the current account?
Select one:
a. Transfers received.
b. Exports.
c. Income received from foreign investments.
d. All of the above.
e. None of the above, since they are entered as debits.
5. Which of the following is not a positive of having a large trade deficit?
Select one:
a. A large trade deficit accumulates foreign debt that must be serviced in the future.
b. A large trade deficit allows for a higher level of investment than possible solely from
domestic savings.
c. A large trade deficit can signal that foreigners have confidence in the current set of
economic policies.
d. A large trade deficit can signal the positive expectations of the future prospects of the
economy.
e. All of the above are positives.
f. None of the above are positives.
6. Why is a current account surplus equivalent to foreign investment?
Select one:
a. A current account surplus leads to additional borrowing of foreign funds: Net Exports + Domestic Saving = Domestic Investments.
b. A current account surplus leads to the net accumulation of foreign assets by the country that has the surplus.
c. A current account surplus indicates that an economy must be importing more than it
exports.
d. None of the above.
7. GNP (Gross National Product) equals GDP plus
Select one:
a. a statistical discrepancy.
b. indirect business taxes.
c. net receipts of factor income from the rest of the world and net unilateral transfers.
d. the capital consumption allowance.
8. If a country has no public or private savings, it is only possible for the county to have positive investment
Select one:
a. in no cases. A country can not invest if there are no public or private savings.
b. if the country runs a current account surplus to finance the investment.
c. if the country's main stock index is rising in value.
d. if the country runs a current account deficit to finance the investment.
9. A country's official reserves are mostly composed of:
Select one:
a. the country's own currency, stocks and bonds.
b. Other countries' currencies.
c. physical goods which can be bartered in emergency situations.
d. Assets of the Federal Reserve.
10. Which of the following is identities is correct?
Select one:
a. GNP - GDP = Net Foreign Investment Income
b. I + S + CA = X - M + C
c. I + S + T = G + X - M
d. None of the above.
11. Use the following information to answer the questions below. Assume that the capital account is equal to 0 Net unilateral transfers Exports of goods and services Net increase in U.S. government's nonreserve foreign assets Net increase in foreign ownership of U.S.-based nonreserve assets Net increase in U.S. private assets abroad Invest income received in the United States Net increase in U.S. ownership of official reserve assets Imports of goods and services Net increase in foreign ownership of U.S.-based reserve assets Investment income paid abroad by the United States 250 500 30 400 250 200 20 600 100 300 a. What is the current account balance? b. Does the financial account equal the current account? c. What is the statistical discrepancy? Show your work in each caseExplanation / Answer
Ans.1 (D) Portfolio investments are made to earn profit in a short period of time.
Ans 2. (C)
Ans 4. (D) All are the source of income for an economy.
Ans 5. (A), large trade deficits means heavy debt that needs to pay.
Ans 6. (A), it can be used for investments.
Ans 7. (C)
Ans 8. (B) the only possible way is to import the investment from abroad.
Ans 9. (A)
Ans 10. (A), else all are incorrect.
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