MCQs on Balance of Payments (2024)

The Balance of Payments is a record of transactions between individuals or entities of one country with the rest of the world, within an accounting year. It helps governments examine imports and exports of goods and services to ascertain the state of their economy. It helps formulate fiscal and monetary policies related to tariffs on foreign trade to support domestic businesses.

We have made a list of multiple-choice questions and answers on Balance of Payments to help students gain a deeper understanding of this topic:

1. Balance of Payments is an accounting statement that records monetary transactions between ________.
   1. Residents of a nation and the rest of the world
   2. Non-residents and the rest of the world
   3. Residents of a nation and non-residents
   4. None of the above

Answer: a

2. Balance of Payments uses the _________ system of accounting.
   1. Single-entry
   2. Double-entry
   3. Cash basis
   4. Accrual basis

Answer: b

3. The ‘resident’, whose monetary transactions get recorded under the Balance of Payments system, includes _______.
   1. Government agencies
   2. Individuals
   3. Firms
   4. All of the above

Answer: d

4. The components of a Balance of Payment account are ____________.
   1. Capital Account
   2. Current Account
   3. Both a and b
   4. None of the above

Answer: c

5. The Balance of Payment account records the inflow of foreign exchange on the _______.
   1. Debit side
   2. Credit side
   3. Both a and b
   4. None of the above

Answer: b

6. Balance of trade is the ___________.
   1. Difference between export and import of services
   2. Total of export and import of services
   3. Difference between export and import of goods
   4. Total of export and import of goods

Answer: c

7. Which of the following is not a component of the Balance of Payments?
   1. Real account
   2. Current account
   3. Capital account
   4. None of the above

Answer: a

See Also
How can we solve the balance of payments problem? Check Answer at BYJU’SBalance of PaymentIncome-based GDP - 6 - Statistical discrepancyHow Decisions Affect - Balance of Payments | CFA Level 1 - AnalystPrep
8. Import and export of goods are known as _____.
   1. Nominal trade
   2. Invisible trade
   3. Visible trade
   4. None of the above

Answer: c

9. Import and export of services are known as ________.
   1. Nominal trade
   2. Invisible trade
   3. Visible trade
   4. None of the above

Answer: b

10. Import of machinery and equipment is recorded under __________ of the ______ account.
    1. Credit side, capital
    2. Debit side, capital
    3. Debit side, current
    4. Credit side, current

Answer: c

11. Gifts or grants received from outside the country get recorded under __________ of the ______ account.
    1. Credit side, capital
    2. Debit side, capital
    3. Debit side, current
    4. Credit side, current

Answer: d

12. The Current account of the Balance of Payments includes transactions like ___________.
    1. Imports and exports of goods and services
    2. Transfers to and from abroad
    3. Income to and from abroad
    4. All of the above

Answer: d

13. The Capital account of the Balance of Payments includes transactions like ___________.
    1. Changes in foreign exchange reserves
    2. Investments to and from abroad
    3. Borrowings and lendings to and from abroad
    4. All of the above

Answer: d

14. Balance of payments is a ___________ concept as compared to balance of trade.
    1. Broader
    2. Similar
    3. Narrower
    4. None of the above

Answer: a

15. Trade Deficit occurs when ______________.
    1. Export of goods is less than imports of goods
    2. Export of goods is more than imports of goods
    3. Export of services is less than imports of services
    4. Export of services is more than imports of services

Answer: a

See Also
Explained: 'Discrepancies' in GDP data and how they affect headline growth rate
16. A business organisation located within India gets a loan from a foreign-based company. This transaction is recorded in the ____________ of ____________ account within the Balance of Payment account of India.
    1. Debit side, current
    2. Credit side, current
    3. Debit side, capital
    4. Credit side, capital

Answer: d

17. A business organisation located within India invests in a foreign-based company. This transaction is recorded in the ____________ of ____________ account within the Balance of Payment account of India.
    1. Debit side, current
    2. Credit side, current
    3. Debit side, capital
    4. Credit side, capital

Answer: c

18. Foreign exchange transactions that are independent of other activities in the Balance of Payments account are ________ transactions.
    1. Capital account
    2. Current account
    3. Accommodating
    4. Autonomous

Answer: d

19. Foreign exchange transactions that are dependent on other activities in the Balance of Payments account are __________ transactions.
    1. Capital account
    2. Current account
    3. Accommodating
    4. Autonomous

Answer: c

20. When payments of foreign exchange are more than receipts, then the Balance of Payments is __________.
    1. Surplus
    2. Deficit
    3. Balanced
    4. None of the above

Answer: b

21. The transactions undertaken to cover the deficit or surplus of autonomous transactions are called __________.
    1. Accommodating transactions
    2. Capital account transactions
    3. Current account transactions
    4. None of the above

Answer: a

22. The measures taken to improve the negative Balance of Payments include ___________.
    1. Exchange control
    2. Currency devaluation
    3. Import substitution
    4. All of the above

Answer: d

23. An increase in the foreign exchange reserve gets recorded on the _________ of the Balance of Payments account.
    1. Debit side
    2. Credit side
    3. Not added to any side
    4. It can be added to any side

Answer: b

24. Which of the following are a part of the Capital account of the Balance of Payments?
    1. Foreign loans
    2. Monetary movements
    3. Foreign investments
    4. All of the above

Answer: d

25. Balance of Payments is an accounting statement for _________.
    1. Business year
    2. New year
    3. Accounting year
    4. All of the above

Answer: c

26. The current account deficit is unfavourable for a country because it signifies ______.
    1. Demerits for the nation
    2. That the nation is a borrower from the rest of the world
    3. The government does not have sufficient foreign exchange to finance its international payment
    4. Both b and c

Answer: d

27. The interest amount on deposits from a foreign bank is recorded in the current account because it is ______.
    1. A transfer receipt
    2. An income from abroad
    3. An invisible service
    4. A visible good

Answer: b

28. If the value of visible exports is more than the value of invisible imports, the balance relates to ____________.
    1. Trade deficit
    2. Capital account
    3. Current account
    4. It cannot be determined

Answer: d

29. If the value of visible imports is more than the value of invisible exports, the balance relates to ____________.
    1. Trade deficit
    2. Capital account
    3. Current account
    4. It cannot be determined

Answer: d

30. If the trade deficit is Rs. 1000 crores and the import of goods is Rs. 2000 crores, then the export of goods will be Rs. _________.
    1. 2000 crores
    2. 1000 crores
    3. 1500 crores
    4. 500 crores

Answer: b

Also See:

• Balance of Trade vs Balance of Payments
• Balance of Payment Surplus and Deficit