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Kautilya Batch
Bop and Foreign Exchange Rate DPP-1

1. BoP is measured as: 4. ____________ records imports and exports of goods

(1) Difference between visible items of exports
and imports
(2) Difference between invisible items of exports
and imports
(3) Difference between external and internal flow
of gold
(4) Difference between all receipts of foreign
exchange and payments of foreign exchange
only. (Balance of trade / Balance of Payments)
5. ____________ account balance includes the balance
of trade as well as balance of invisibles. (Current /
Capital)
6. BoP surplus leads to an / a ___________ in official
reserves. (Increase / Decrease)

2. Balance of trade is measured as:
(1) Difference between import and export of
goods
(2) Difference between import and export of
services
(3) Difference between import and export of
capital
(4) Difference between all exports and all imports
7. High rate of inflation in the domestic economy
causes ‘deficit balance of trade’.
8. There is no difference between balance of trade and
balance on current account of BoP.
9. ‘Transfers to rest of the world’ is a debit component
of balance of payments on current account.

3. In which of the following categories are the 10. Borrowing and lending in the international money
transactions of balance of trade recorded? market is a part of current account balance of
(1) Visible items payments.
(2) Invisible items
(3) Capital transfers
(4) All of these
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Answer Key
1. (4) 6. (With Discussion)
2. (1) 7. (True)
3. (1) 8. (False)
4. (With Discussion) 9. (True)
5. (With Discussion) 10. (False)
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Hints & Solutions

1. (4) 8. (False)
Balance of trade includes only visible items
2. (1) whereas current account of balance of
payments includes both visible as well as
3. (1) invisible items.

4. (H & S) 9. (True)
Balance of trade Transfers to rest of the world is recorded as
negative item and therefore, reflected in the
5. (H & S) debit side of balance of payments on current
Current account. This is because it involves the
payment of foreign exchange to rest of the
6. (H & S) world.
Increase
10. (False)
7. (True) Borrowing and lending in the international
Because high rate of inflation makes money market is a part of capital account
domestic goods costlier in relation to goods balance of payments.
from rest of the world. This leads to increase
in imports and decrease in exports. Implying
a deficit balance of trade

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