Balance of Payments and Foreign Exchange MCQ — Class 12

Test your understanding of Balance of Payments and Foreign Exchange with 20 free questions across Easy and Moderate. Hard and Extreme require Premium. Choose a level in the interactive quiz to answer questions and review explanations.

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Key concepts to revise

Balance of Payments

Balance of Payments: a systematic record of economic transactions between residents of a country and the rest of the world during a period

Current account

Current account: the BOP account covering transactions such as goods, services, income flows and current transfers under the prescribed classification

Capital or financial account

Capital or financial account: the BOP side recording transactions that change international assets or liabilities such as investment and borrowing or lending flows

BOP deficit

BOP deficit: a situation in which autonomous external payments exceed autonomous receipts so financing or reserve adjustment is required under the accounting framework

Foreign exchange rate

Foreign exchange rate: the price of one currency in terms of another currency

Demand for foreign exchange

Demand for foreign exchange: demand arising from external payments such as imports, foreign travel or investment abroad

Supply of foreign exchange

Supply of foreign exchange: foreign-currency supply arising from external receipts such as exports, remittances or foreign investment inflows

Flexible exchange rate

Flexible exchange rate: an exchange rate largely determined by market demand and supply for foreign exchange

Fixed exchange rate

Fixed exchange rate: an exchange rate officially maintained at a specified or tightly controlled level through policy intervention

Managed floating

Managed floating: a regime where market forces influence the exchange rate but the monetary authority may intervene to moderate movements

Try these sample MCQs

1. Which concept best matches this situation? Transactions involving goods, services, income, transfers and cross-border financial flows are recorded.

  1. Current account
  2. Balance of Payments
  3. BOP deficit
  4. Supply of foreign exchange
Check answer and explanation

Balance of Payments. Balance of Payments: a systematic record of economic transactions between residents of a country and the rest of the world during a period

2. Which concept best matches this situation? Export of services is recorded on the current account.

  1. Capital or financial account
  2. Foreign exchange rate
  3. Current account
  4. Flexible exchange rate
Check answer and explanation

Current account. Current account: the BOP account covering transactions such as goods, services, income flows and current transfers under the prescribed classification

3. Which concept best matches this situation? Foreign investment in domestic assets changes cross-border financial claims.

  1. BOP deficit
  2. Demand for foreign exchange
  3. Fixed exchange rate
  4. Capital or financial account
Check answer and explanation

Capital or financial account. Capital or financial account: the BOP side recording transactions that change international assets or liabilities such as investment and borrowing or lending flows

After the quiz

Write down the concepts you missed. Explain each one in your own words, give an example, and attempt the level again without notes. A high score on a short quiz does not replace revision of the whole chapter.

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