CHOOSE THE ANSWERS FROM HIGHLIGTED BELOW 1a If net factor income from abroad and

ID: 2760331 • Letter: C

Question

CHOOSE THE ANSWERS FROM HIGHLIGTED BELOW

1a If net factor income from abroad and net transfer payments are zero in the balance of payments,

a current account deficit indicates the country is importing a lesser amount than it is exporting.

the current account must be zero to maintain the balance of payments.

a current account surplus indicates the capital account must be in surplus to maintain the balance of payments.

a current account surplus indicates the country is importing a greater amount than it is exporting.

a current account surplus indicates the country is exporting a greater amount than it is importing

Covered interest arbitrage is

a trading strategy used by investors to profit from the interest rate differences between two countries.

a government strategy to arbitrate disputes over interest rate differences between two countries.

a trading strategy used by investors to cover (i.e. protect) themselves from domestic and foreign interest rate movements.

a trading strategy used by investors to cover (i.e. protect) themselves from domestic interest rate movements.

a trading strategy used by investors to cover (i.e. protect) themselves from foreign interest rate movements

1c.

When using the variable notation , the exact formula for covered interest parity is,

R - R* = (F - S)/F

R = (F/S)R*

R = (S/F)R*

(1+R) = (F/S)(1+R*)

(1+R) = (S/F)(1+R*)

Assuming net errors and omissions are zero in a country's balance of payment accounts, then according to the IMF balance of payment definitions,

current account + capital account = ("net-debit") financial account.

current account + capital account = 0

current account + capital account + ("net-debit") financial account = 0.

current account = capital account

current account + capital account = ("net-credit") financial account

Question 1a)

Option D: a current account surplus indicates the country is exporting a greater amount than it is importing is correct.

Current account balance = net export – net import + net factor income from abroad + net current transfer.

Since transfers and factor income is zero, for positive account balance, net exports should be greater than net imports.

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