Balance of Payments
Welcome to this comprehensive guide on the Balance of Payments (BoP). This blog is designed to help students, aspirants, and professionals gain a clear understanding of BoP concepts through a structured set of 200 multiple-choice questions with detailed answers and explanations. Covering fundamentals, current and capital accounts, IMF frameworks, crises, and advanced applications, this resource ensures complete topic coverage in exam-style format. Whether you are preparing for competitive exams or strengthening your knowledge of global economics, this blog provides clarity, practice, and confidence for mastering Balance of Payments.
✅ A) Record of all economic transactions between residents and rest of world
B) Record of domestic trade only
C) Record of subsidies only
D) Record is irrelevant
Explanation: BoP captures all international transactions.
Q2. BoP consists of:
✅ A) Current account, capital account, financial account, errors & omissions
B) Domestic trade only
C) Subsidies only
D) Composition is irrelevant
Explanation: BoP has multiple components.
Q3. Current account records:
✅ A) Trade in goods, services, income, transfers
B) Capital flows only
C) Subsidies only
D) Recording is irrelevant
Explanation: Current account covers trade and income.
Q4. Capital account records:
✅ A) Capital transfers and acquisition/disposal of non‑produced assets
B) Goods trade only
C) Subsidies only
D) Recording is irrelevant
Explanation: Capital account tracks capital flows.
Q5. Financial account records:
✅ A) Investments, loans, banking flows
B) Goods trade only
C) Subsidies only
D) Recording is irrelevant
Explanation: Financial account covers cross‑border investments.
Q6. BoP surplus means:
✅ A) Inflows exceed outflows
B) Outflows exceed inflows
C) Subsidies only
D) Meaning is irrelevant
Explanation: Surplus = positive balance.
Q7. BoP deficit means:
✅ A) Outflows exceed inflows
B) Inflows exceed outflows
C) Subsidies only
D) Meaning is irrelevant
Explanation: Deficit = negative balance.
Q8. Balance of Trade refers to:
✅ A) Difference between exports and imports of goods
B) Difference in capital flows
C) Subsidies only
D) Meaning is irrelevant
Explanation: BoT is goods trade balance.
Q9. BoP is broader than BoT because:
✅ A) Includes services, capital flows, transfers
B) Includes goods only
C) Includes subsidies only
D) Reason is irrelevant
Explanation: BoP covers all international transactions.
Q10. Errors & omissions in BoP adjust:
✅ A) Statistical discrepancies in recording
B) Subsidies only
C) Domestic trade only
D) Adjustment is irrelevant
Explanation: Errors balance accounting mismatches.
Q11. BoP equilibrium means:
✅ A) Inflows equal outflows
B) Inflows exceed outflows
C) Outflows exceed inflows
D) Meaning is irrelevant
Explanation: Equilibrium = balanced BoP.
Q12. BoP disequilibrium means:
✅ A) Persistent surplus or deficit
B) Perfect balance
C) Subsidies only
D) Meaning is irrelevant
Explanation: Disequilibrium = imbalance.
Q13. Invisible items in BoP include:
✅ A) Services, remittances, income flows
B) Goods only
C) Subsidies only
D) Items are irrelevant
Explanation: Invisibles are non‑goods transactions.
Q14. Remittances are recorded in:
✅ A) Current account transfers
B) Capital account
C) Subsidies only
D) Recording is irrelevant
Explanation: Remittances are current transfers.
Q15. FDI is recorded in:
✅ A) Financial account
B) Current account
C) Subsidies only
D) Recording is irrelevant
Explanation: FDI is cross‑border investment.
Q16. Portfolio investment is recorded in:
✅ A) Financial account
B) Current account
C) Subsidies only
D) Recording is irrelevant
Explanation: Portfolio flows are financial account items.
Q17. BoP statistics are compiled by:
✅ A) Central banks and statistical agencies
B) Private companies only
C) Subsidies only
D) Compilation is irrelevant
Explanation: Central banks publish BoP data.
Q18. BoP is expressed in:
✅ A) Domestic currency or USD equivalent
B) Commodities only
C) Subsidies only
D) Expression is irrelevant
Explanation: BoP is monetary record.
Q19. BoP analysis helps:
✅ A) Assess external sector health
B) Assess domestic subsidies only
C) Assess consumer goods only
D) Analysis is irrelevant
Explanation: BoP shows external stability.
Q20. Persistent BoP deficit may lead to:
✅ A) Currency depreciation and reserves depletion
B) Currency appreciation
C) Subsidies only
D) Effect is irrelevant
Explanation: Deficit weakens currency.
Q21. Persistent BoP surplus may lead to:
✅ A) Currency appreciation and reserve accumulation
B) Currency depreciation
C) Subsidies only
D) Effect is irrelevant
Explanation: Surplus strengthens currency.
Q22. BoP is important for:
✅ A) Policy making, exchange rate management, trade strategy
B) Subsidies only
C) Domestic consumption only
D) Importance is irrelevant
Explanation: BoP guides policy.
Q23. BoP data is published:
✅ A) Quarterly and annually by central banks
B) Daily by stock exchanges
C) Subsidies only
D) Publication is irrelevant
Explanation: BoP is periodic data.
Q24. BoP reflects:
✅ A) Country’s external economic position
B) Domestic subsidies only
C) Consumer goods only
D) Reflection is irrelevant
Explanation: BoP shows external sector health.
Q25. BoP overall is:
✅ A) Comprehensive record of international transactions
B) Record of domestic trade only
C) Record of subsidies only
D) Record is irrelevant
Explanation: BoP is complete external account.
Q26. Current account records:
✅ A) Trade in goods, services, income, transfers
B) Capital flows only
C) Subsidies only
D) Recording is irrelevant
Explanation: Current account captures day‑to‑day external transactions.
Q27. Exports of goods are recorded as:
✅ A) Credit in current account
B) Debit in capital account
C) Subsidy entry
D) Recording is irrelevant
Explanation: Exports bring inflows, hence credit.
Q28. Imports of goods are recorded as:
✅ A) Debit in current account
B) Credit in capital account
C) Subsidy entry
D) Recording is irrelevant
Explanation: Imports cause outflows, hence debit.
Q29. Services trade includes:
✅ A) IT, tourism, transport, financial services
B) Goods only
C) Subsidies only
D) Inclusion is irrelevant
Explanation: Services are part of current account.
Q30. Net invisibles in current account refer to:
✅ A) Balance of services, income, transfers
B) Balance of goods only
C) Subsidies only
D) Meaning is irrelevant
Explanation: Invisibles include non‑goods items.
Q31. Remittances from abroad are:
✅ A) Credit in current transfers
B) Debit in capital account
C) Subsidy entry
D) Recording is irrelevant
Explanation: Remittances add inflows.
Q32. Outward remittances are:
✅ A) Debit in current transfers
B) Credit in capital account
C) Subsidy entry
D) Recording is irrelevant
Explanation: Outflows reduce current account balance.
Q33. Investment income includes:
✅ A) Dividends, interest, profits from foreign assets
B) Goods trade only
C) Subsidies only
D) Inclusion is irrelevant
Explanation: Investment income is part of current account.
Q34. Primary income in current account refers to:
✅ A) Compensation of employees, investment income
B) Transfers only
C) Subsidies only
D) Meaning is irrelevant
Explanation: Primary income covers factor payments.
Q35. Secondary income in current account refers to:
✅ A) Transfers like remittances, aid, gifts
B) Investment income only
C) Subsidies only
D) Meaning is irrelevant
Explanation: Secondary income is non‑factor transfers.
Q36. Current account surplus means:
✅ A) Exports + inflows > imports + outflows
B) Imports > exports
C) Subsidies only
D) Meaning is irrelevant
Explanation: Surplus strengthens currency.
Q37. Current account deficit means:
✅ A) Imports + outflows > exports + inflows
B) Exports > imports
C) Subsidies only
D) Meaning is irrelevant
Explanation: Deficit weakens currency.
Q38. Current account balance is crucial for:
✅ A) Assessing trade competitiveness and external stability
B) Domestic subsidies only
C) Consumer goods only
D) Importance is irrelevant
Explanation: Current account shows external health.
Q39. India’s major current account inflows include:
✅ A) IT services exports and remittances
B) Subsidies only
C) Consumer goods only
D) Inflows are irrelevant
Explanation: Services and remittances boost inflows.
Q40. India’s major current account outflows include:
✅ A) Oil imports and gold imports
B) Subsidies only
C) Consumer goods only
D) Outflows are irrelevant
Explanation: Oil and gold dominate imports.
Q41. Trade balance is:
✅ A) Difference between exports and imports of goods
B) Difference in capital flows
C) Subsidies only
D) Meaning is irrelevant
Explanation: Trade balance is goods‑only measure.
Q42. Services balance is:
✅ A) Difference between exports and imports of services
B) Goods only
C) Subsidies only
D) Meaning is irrelevant
Explanation: Services balance tracks service trade.
Q43. Current transfers include:
✅ A) Remittances, foreign aid, gifts
B) Goods trade only
C) Subsidies only
D) Inclusion is irrelevant
Explanation: Transfers are non‑reciprocal flows.
Q44. Current account deficit is financed by:
✅ A) Capital inflows or reserves
B) Subsidies only
C) Domestic trade only
D) Financing is irrelevant
Explanation: Deficit requires external financing.
Q45. Persistent current account deficit may lead to:
✅ A) Currency depreciation and external vulnerability
B) Currency appreciation
C) Subsidies only
D) Effect is irrelevant
Explanation: Deficit pressures currency.
Q46. Persistent current account surplus may lead to:
✅ A) Currency appreciation and reserve accumulation
B) Currency depreciation
C) Subsidies only
D) Effect is irrelevant
Explanation: Surplus strengthens currency.
Q47. Current account is linked to:
✅ A) Exchange rate movements and competitiveness
B) Subsidies only
C) Domestic consumption only
D) Link is irrelevant
Explanation: Current account affects forex rates.
Q48. Current account deficit is sometimes called:
✅ A) Trade deficit (if goods dominate)
B) Subsidy deficit
C) Tax deficit
D) Name is irrelevant
Explanation: Trade deficit is part of current account.
Q49. Current account balance is reported:
✅ A) Quarterly and annually by central banks
B) Daily by stock exchanges
C) Subsidies only
D) Reporting is irrelevant
Explanation: Current account is periodic data.
Q50. Current account overall reflects:
✅ A) Country’s external trade and income position
B) Domestic subsidies only
C) Consumer goods only
D) Reflection is irrelevant
Explanation: Current account shows external competitiveness.
Q51. Capital account records:
✅ A) Capital transfers and acquisition/disposal of non‑produced assets
B) Goods trade only
C) Subsidies only
D) Recording is irrelevant
Explanation: Capital account tracks capital transactions.
Q52. Financial account records:
✅ A) Cross‑border investments, loans, banking flows
B) Goods trade only
C) Subsidies only
D) Recording is irrelevant
Explanation: Financial account covers investment flows.
Q53. Foreign Direct Investment (FDI) is:
✅ A) Long‑term investment in business operations abroad
B) Short‑term portfolio investment
C) Subsidies only
D) FDI is irrelevant
Explanation: FDI involves control and ownership.
Q54. Foreign Institutional Investment (FII) is:
✅ A) Portfolio investment by foreign institutions
B) Long‑term business ownership
C) Subsidies only
D) FII is irrelevant
Explanation: FII is short‑term capital inflow.
Q55. External commercial borrowings (ECBs) are:
✅ A) Loans raised by companies from foreign sources
B) Domestic loans only
C) Subsidies only
D) Borrowings are irrelevant
Explanation: ECBs are foreign debt instruments.
Q56. Capital transfers include:
✅ A) Debt forgiveness, migrants’ transfers, non‑produced assets
B) Goods trade only
C) Subsidies only
D) Transfers are irrelevant
Explanation: Capital transfers are one‑time flows.
Q57. Reserve assets include:
✅ A) Foreign currency, gold, SDRs, IMF position
B) Domestic subsidies only
C) Consumer goods only
D) Assets are irrelevant
Explanation: Reserves are held by central banks.
Q58. Increase in reserves is recorded as:
✅ A) Debit in financial account
B) Credit in current account
C) Subsidy entry
D) Recording is irrelevant
Explanation: Reserve accumulation is outflow.
Q59. Decrease in reserves is recorded as:
✅ A) Credit in financial account
B) Debit in current account
C) Subsidy entry
D) Recording is irrelevant
Explanation: Reserve depletion is inflow.
Q60. Capital account surplus means:
✅ A) Capital inflows exceed outflows
B) Outflows exceed inflows
C) Subsidies only
D) Meaning is irrelevant
Explanation: Surplus strengthens external position.
Q61. Capital account deficit means:
✅ A) Capital outflows exceed inflows
B) Inflows exceed outflows
C) Subsidies only
D) Meaning is irrelevant
Explanation: Deficit weakens external position.
Q62. FDI inflows strengthen:
✅ A) Long‑term capital account balance
B) Current account only
C) Subsidies only
D) Strengthening is irrelevant
Explanation: FDI adds stable capital inflows.
Q63. FII inflows strengthen:
✅ A) Short‑term capital account balance
B) Current account only
C) Subsidies only
D) Strengthening is irrelevant
Explanation: FII adds volatile capital inflows.
Q64. Capital account liberalization refers to:
✅ A) Removal of restrictions on capital flows
B) Restriction of capital flows
C) Subsidies only
D) Liberalization is irrelevant
Explanation: Liberalization opens capital markets.
Q65. Capital account convertibility means:
✅ A) Freedom to convert domestic currency into foreign currency for capital transactions
B) Freedom only for goods trade
C) Subsidies only
D) Convertibility is irrelevant
Explanation: Convertibility allows free capital flows.
Q66. India has:
✅ A) Partial capital account convertibility
B) Full convertibility
C) No convertibility
D) Statement is irrelevant
Explanation: India restricts certain capital flows.
Q67. Capital inflows may cause:
✅ A) Currency appreciation and reserve accumulation
B) Currency depreciation
C) Subsidies only
D) Effect is irrelevant
Explanation: Inflows strengthen currency.
Q68. Capital outflows may cause:
✅ A) Currency depreciation and reserve depletion
B) Currency appreciation
C) Subsidies only
D) Effect is irrelevant
Explanation: Outflows weaken currency.
Q69. Capital account is linked to:
✅ A) Financial stability and exchange rate management
B) Subsidies only
C) Domestic consumption only
D) Link is irrelevant
Explanation: Capital flows affect stability.
Q70. Sudden capital outflows are called:
✅ A) Capital flight
B) Capital inflow
C) Subsidies only
D) Term is irrelevant
Explanation: Capital flight destabilizes economy.
Q71. Capital flight may lead to:
✅ A) Currency crisis and reserve depletion
B) Currency appreciation
C) Subsidies only
D) Effect is irrelevant
Explanation: Capital flight weakens external sector.
Q72. Sovereign wealth funds invest:
✅ A) Surplus reserves in global assets
B) Domestic subsidies only
C) Consumer goods only
D) Investment is irrelevant
Explanation: SWFs manage national wealth.
Q73. Capital account openness increases:
✅ A) Integration with global financial markets
B) Isolation from global markets
C) Subsidies only
D) Effect is irrelevant
Explanation: Openness links economies.
Q74. Capital account restrictions are imposed to:
✅ A) Prevent volatility and protect domestic economy
B) Encourage instability
C) Subsidies only
D) Reason is irrelevant
Explanation: Restrictions safeguard stability.
Q75. Capital account overall reflects:
✅ A) Cross‑border capital flows and reserves
B) Goods trade only
C) Subsidies only
D) Reflection is irrelevant
Explanation: Capital account shows external capital position.
Q76. Balance of Trade (BoT) measures:
✅ A) Difference between exports and imports of goods
B) Difference in capital flows
C) Subsidies only
D) Measurement is irrelevant
Explanation: BoT is goods‑only balance.
Q77. Balance of Payments (BoP) is broader than BoT because:
✅ A) Includes services, capital flows, transfers
B) Includes goods only
C) Includes subsidies only
D) Reason is irrelevant
Explanation: BoP covers all international transactions.
Q78. BoT surplus means:
✅ A) Exports of goods exceed imports
B) Imports exceed exports
C) Subsidies only
D) Meaning is irrelevant
Explanation: Surplus strengthens currency.
Q79. BoT deficit means:
✅ A) Imports of goods exceed exports
B) Exports exceed imports
C) Subsidies only
D) Meaning is irrelevant
Explanation: Deficit weakens currency.
Q80. BoP surplus means:
✅ A) Total inflows exceed total outflows
B) Outflows exceed inflows
C) Subsidies only
D) Meaning is irrelevant
Explanation: Surplus indicates positive external balance.
Q81. BoP deficit means:
✅ A) Total outflows exceed total inflows
B) Inflows exceed outflows
C) Subsidies only
D) Meaning is irrelevant
Explanation: Deficit indicates negative external balance.
Q82. Persistent BoT deficit may lead to:
✅ A) Current account deficit
B) Capital account surplus
C) Subsidies only
D) Effect is irrelevant
Explanation: Trade deficit worsens current account.
Q83. Persistent BoP deficit may lead to:
✅ A) Currency depreciation and reserve depletion
B) Currency appreciation
C) Subsidies only
D) Effect is irrelevant
Explanation: Deficit pressures currency.
Q84. Persistent BoP surplus may lead to:
✅ A) Currency appreciation and reserve accumulation
B) Currency depreciation
C) Subsidies only
D) Effect is irrelevant
Explanation: Surplus strengthens currency.
Q85. BoT is a subset of:
✅ A) Current account in BoP
B) Capital account
C) Subsidies only
D) Subset is irrelevant
Explanation: BoT is part of current account.
Q86. BoP equilibrium means:
✅ A) Inflows equal outflows
B) Inflows exceed outflows
C) Outflows exceed inflows
D) Meaning is irrelevant
Explanation: Equilibrium = balanced BoP.
Q87. BoP disequilibrium means:
✅ A) Persistent surplus or deficit
B) Perfect balance
C) Subsidies only
D) Meaning is irrelevant
Explanation: Disequilibrium = imbalance.
Q88. BoT surplus may offset:
✅ A) Current account deficit in services
B) Capital account deficit
C) Subsidies only
D) Offset is irrelevant
Explanation: Goods surplus balances other deficits.
Q89. BoT deficit may be offset by:
✅ A) Surplus in services or remittances
B) Subsidies only
C) Domestic consumption only
D) Offset is irrelevant
Explanation: Invisibles can balance goods deficit.
Q90. BoP deficit financing includes:
✅ A) Using reserves, borrowing, capital inflows
B) Subsidies only
C) Domestic trade only
D) Financing is irrelevant
Explanation: Deficit requires external financing.
Q91. BoP surplus management includes:
✅ A) Reserve accumulation, sterilization policies
B) Subsidies only
C) Domestic trade only
D) Management is irrelevant
Explanation: Surplus requires monetary management.
Q92. BoT is influenced by:
✅ A) Exchange rates, competitiveness, global demand
B) Subsidies only
C) Domestic consumption only
D) Influence is irrelevant
Explanation: Trade balance depends on competitiveness.
Q93. BoP is influenced by:
✅ A) Trade, capital flows, remittances, reserves
B) Subsidies only
C) Domestic consumption only
D) Influence is irrelevant
Explanation: BoP reflects all external flows.
Q94. BoT deficit is sometimes called:
✅ A) Trade deficit
B) Subsidy deficit
C) Tax deficit
D) Name is irrelevant
Explanation: Trade deficit = goods imbalance.
Q95. BoP deficit is sometimes called:
✅ A) External sector imbalance
B) Subsidy deficit
C) Tax deficit
D) Name is irrelevant
Explanation: BoP deficit = external imbalance.
Q96. BoT surplus improves:
✅ A) Current account balance
B) Capital account balance
C) Subsidies only
D) Improvement is irrelevant
Explanation: Goods surplus strengthens current account.
Q97. BoT deficit worsens:
✅ A) Current account balance
B) Capital account balance
C) Subsidies only
D) Effect is irrelevant
Explanation: Goods deficit weakens current account.
Q98. BoP surplus improves:
✅ A) External stability and reserves
B) Domestic subsidies only
C) Consumer goods only
D) Improvement is irrelevant
Explanation: Surplus boosts external strength.
Q99. BoP deficit worsens:
✅ A) External stability and reserves
B) Domestic subsidies only
C) Consumer goods only
D) Effect is irrelevant
Explanation: Deficit weakens external strength.
Q100. BoP vs BoT overall:
✅ A) BoT is goods trade; BoP is comprehensive external account
B) Both are same
C) Both are subsidies only
D) Comparison is irrelevant
Explanation: BoP includes BoT plus services, capital flows, transfers.
Q101. In India, BoP statistics are compiled by:
✅ A) Reserve Bank of India (RBI)
B) Ministry of Finance only
C) Stock exchanges
D) Compilation is irrelevant
Explanation: RBI publishes India’s BoP data.
Q102. India’s BoP is reported:
✅ A) Quarterly and annually
B) Daily by exchanges
C) Subsidies only
D) Reporting is irrelevant
Explanation: RBI releases periodic BoP reports.
Q103. India’s major current account inflows include:
✅ A) IT services exports and remittances
B) Subsidies only
C) Consumer goods only
D) Inflows are irrelevant
Explanation: Services and remittances dominate inflows.
Q104. India’s major current account outflows include:
✅ A) Oil and gold imports
B) Subsidies only
C) Consumer goods only
D) Outflows are irrelevant
Explanation: Oil and gold are key imports.
Q105. India’s BoP crisis in 1991 was due to:
✅ A) Severe current account deficit and low reserves
B) Surplus reserves
C) Subsidies only
D) Crisis is irrelevant
Explanation: 1991 crisis triggered reforms.
Q106. India resolved 1991 BoP crisis by:
✅ A) IMF loan, gold pledge, liberalization reforms
B) Subsidies only
C) Domestic trade only
D) Resolution is irrelevant
Explanation: Reforms stabilized external sector.
Q107. India’s BoP surplus years are often due to:
✅ A) Strong services exports and remittances
B) Subsidies only
C) Consumer goods only
D) Surplus is irrelevant
Explanation: Services drive surpluses.
Q108. India’s BoP deficit years are often due to:
✅ A) High oil import bills
B) Subsidies only
C) Consumer goods only
D) Deficit is irrelevant
Explanation: Oil imports widen deficit.
Q109. India’s capital account inflows include:
✅ A) FDI, FII, ECBs
B) Subsidies only
C) Consumer goods only
D) Inflows are irrelevant
Explanation: Capital inflows strengthen reserves.
Q110. India’s capital account outflows include:
✅ A) External debt repayments, outward FDI
B) Subsidies only
C) Consumer goods only
D) Outflows are irrelevant
Explanation: Outflows reduce reserves.
Q111. India’s BoP is sensitive to:
✅ A) Global oil prices and capital flows
B) Subsidies only
C) Domestic consumption only
D) Sensitivity is irrelevant
Explanation: Oil and capital flows drive BoP.
Q112. RBI manages BoP stability through:
✅ A) Exchange rate intervention and reserve management
B) Subsidies only
C) Consumer goods only
D) Management is irrelevant
Explanation: RBI stabilizes external sector.
Q113. India’s forex reserves are held in:
✅ A) Foreign currency, gold, SDRs, IMF position
B) Domestic subsidies only
C) Consumer goods only
D) Reserves are irrelevant
Explanation: Reserves strengthen external stability.
Q114. India’s BoP surplus leads to:
✅ A) Reserve accumulation and currency appreciation pressure
B) Currency depreciation
C) Subsidies only
D) Effect is irrelevant
Explanation: Surplus boosts reserves.
Q115. India’s BoP deficit leads to:
✅ A) Reserve depletion and currency depreciation pressure
B) Currency appreciation
C) Subsidies only
D) Effect is irrelevant
Explanation: Deficit weakens reserves.
Q116. India’s remittances are mainly from:
✅ A) Middle East and North America
B) Domestic subsidies only
C) Consumer goods only
D) Source is irrelevant
Explanation: Migrant workers send remittances.
Q117. India’s IT services exports contribute to:
✅ A) Current account surplus
B) Capital account deficit
C) Subsidies only
D) Contribution is irrelevant
Explanation: IT exports boost inflows.
Q118. India’s BoP data is crucial for:
✅ A) Policy making, trade strategy, exchange rate management
B) Subsidies only
C) Consumer goods only
D) Importance is irrelevant
Explanation: BoP guides external policy.
Q119. India’s BoP crisis indicators include:
✅ A) Falling reserves, widening current account deficit
B) Rising reserves
C) Subsidies only
D) Indicators are irrelevant
Explanation: Crisis shows external weakness.
Q120. India’s BoP surplus indicators include:
✅ A) Rising reserves, strong inflows
B) Falling reserves
C) Subsidies only
D) Indicators are irrelevant
Explanation: Surplus shows external strength.
Q121. RBI intervenes in forex market to:
✅ A) Stabilize rupee and BoP
B) Subsidies only
C) Consumer goods only
D) Intervention is irrelevant
Explanation: RBI manages currency stability.
Q122. India’s BoP is linked to:
✅ A) Exchange rate, inflation, growth
B) Subsidies only
C) Consumer goods only
D) Link is irrelevant
Explanation: BoP affects macroeconomy.
Q123. India’s BoP reforms include:
✅ A) Liberalization, convertibility, FDI policies
B) Subsidies only
C) Consumer goods only
D) Reforms are irrelevant
Explanation: Reforms improved external sector.
Q124. India’s BoP monitoring helps:
✅ A) Detect vulnerabilities and plan policies
B) Subsidies only
C) Consumer goods only
D) Monitoring is irrelevant
Explanation: Monitoring ensures stability.
Q125. India’s BoP overall reflects:
✅ A) External sector health, reserves, and policy effectiveness
B) Domestic subsidies only
C) Consumer goods only
D) Reflection is irrelevant
Explanation: BoP shows India’s external position.
Q126. IMF stands for:
✅ A) International Monetary Fund
B) International Market Forum
C) Indian Monetary Federation
D) IMF is irrelevant
Explanation: IMF supports global monetary stability.
Q127. IMF was established in:
✅ A) 1944 at Bretton Woods Conference
B) 1950 in Geneva
C) 1960 in India
D) Establishment is irrelevant
Explanation: IMF was created post‑WWII.
Q128. IMF’s main role is:
✅ A) Provide financial assistance and monitor global economy
B) Provide subsidies only
C) Manage consumer goods
D) Role is irrelevant
Explanation: IMF stabilizes global monetary system.
Q129. IMF provides assistance through:
✅ A) Lending facilities like Stand‑By Arrangements
B) Subsidies only
C) Domestic trade only
D) Assistance is irrelevant
Explanation: IMF lends to countries in crisis.
Q130. SDR stands for:
✅ A) Special Drawing Rights
B) Standard Debt Ratio
C) Subsidy Distribution Rights
D) SDR is irrelevant
Explanation: SDR is IMF’s reserve asset.
Q131. SDR value is based on:
✅ A) Basket of major currencies (USD, EUR, GBP, JPY, CNY)
B) Gold only
C) Subsidies only
D) Value is irrelevant
Explanation: SDR is currency basket‑based.
Q132. SDRs are allocated to:
✅ A) IMF member countries
B) Private companies
C) Subsidy agencies
D) Allocation is irrelevant
Explanation: SDRs strengthen reserves.
Q133. IMF conditionality refers to:
✅ A) Policy reforms required for loans
B) Subsidies only
C) Consumer goods only
D) Conditionality is irrelevant
Explanation: IMF loans require reforms.
Q134. IMF surveillance means:
✅ A) Monitoring global economy and member policies
B) Subsidies only
C) Domestic trade only
D) Surveillance is irrelevant
Explanation: IMF oversees global stability.
Q135. IMF quota determines:
✅ A) Voting power, financial contribution, access to resources
B) Subsidies only
C) Consumer goods only
D) Quota is irrelevant
Explanation: Quota defines member rights.
Q136. IMF quota is based on:
✅ A) Country’s GDP, reserves, trade openness
B) Subsidies only
C) Consumer goods only
D) Basis is irrelevant
Explanation: Quota reflects economic size.
Q137. IMF lending facilities include:
✅ A) Stand‑By Arrangements, Extended Fund Facility
B) Subsidies only
C) Consumer goods only
D) Facilities are irrelevant
Explanation: IMF provides multiple lending tools.
Q138. IMF supports BoP by:
✅ A) Providing loans to cover deficits
B) Subsidies only
C) Domestic trade only
D) Support is irrelevant
Explanation: IMF stabilizes BoP crises.
Q139. IMF Articles of Agreement guide:
✅ A) Operations and member obligations
B) Subsidies only
C) Consumer goods only
D) Agreement is irrelevant
Explanation: Articles define IMF framework.
Q140. IMF resources come from:
✅ A) Member quotas and borrowings
B) Subsidies only
C) Consumer goods only
D) Resources are irrelevant
Explanation: Quotas fund IMF lending.
Q141. IMF reforms in India included:
✅ A) 1991 liberalization and structural adjustments
B) Subsidies only
C) Consumer goods only
D) Reforms are irrelevant
Explanation: IMF loans triggered reforms.
Q142. IMF lending helps countries:
✅ A) Overcome BoP deficits and stabilize currency
B) Subsidies only
C) Domestic trade only
D) Help is irrelevant
Explanation: IMF loans restore stability.
Q143. IMF conditionality is criticized for:
✅ A) Austerity measures and social impact
B) Subsidies only
C) Consumer goods only
D) Criticism is irrelevant
Explanation: Conditionality may hurt growth.
Q144. SDRs are used to:
✅ A) Supplement reserves and settle IMF obligations
B) Subsidies only
C) Consumer goods only
D) Use is irrelevant
Explanation: SDRs strengthen liquidity.
Q145. IMF supports global BoP framework by:
✅ A) Coordinating policies and providing financial aid
B) Subsidies only
C) Consumer goods only
D) Support is irrelevant
Explanation: IMF ensures stability.
Q146. IMF voting power is:
✅ A) Weighted by quotas
B) Equal for all countries
C) Subsidies only
D) Voting is irrelevant
Explanation: Larger economies have more votes.
Q147. IMF lending is short‑term because:
✅ A) Designed to address BoP crises quickly
B) Designed for subsidies only
C) Designed for consumer goods only
D) Reason is irrelevant
Explanation: IMF loans stabilize external accounts.
Q148. IMF reforms often include:
✅ A) Fiscal discipline, trade liberalization, privatization
B) Subsidies only
C) Consumer goods only
D) Reforms are irrelevant
Explanation: Reforms aim at structural change.
Q149. IMF global surveillance reports include:
✅ A) World Economic Outlook, Global Financial Stability Report
B) Subsidies only
C) Consumer goods only
D) Reports are irrelevant
Explanation: IMF publishes global analysis.
Q150. IMF overall role in BoP is:
✅ A) Provide financial support, monitor policies, allocate SDRs
B) Subsidies only
C) Consumer goods only
D) Role is irrelevant
Explanation: IMF stabilizes global BoP framework.
Q151. A BoP crisis occurs when:
✅ A) Country cannot finance external payments due to deficit
B) Country has surplus reserves
C) Subsidies only
D) Crisis is irrelevant
Explanation: Crisis arises from unsustainable deficits.
Q152. Common causes of BoP crisis include:
✅ A) High imports, falling exports, capital flight
B) Surplus reserves
C) Subsidies only
D) Causes are irrelevant
Explanation: Deficits and outflows trigger crisis.
Q153. BoP crisis indicators are:
✅ A) Falling reserves, widening current account deficit, currency depreciation
B) Rising reserves
C) Subsidies only
D) Indicators are irrelevant
Explanation: Indicators show external weakness.
Q154. BoP crisis in India (1991) was triggered by:
✅ A) Oil price shock, high imports, low reserves
B) Surplus reserves
C) Subsidies only
D) Trigger is irrelevant
Explanation: 1991 crisis forced reforms.
Q155. Adjustment mechanisms for BoP crisis include:
✅ A) Devaluation, import compression, external borrowing
B) Subsidies only
C) Domestic trade only
D) Mechanisms are irrelevant
Explanation: Adjustments restore balance.
Q156. Devaluation helps BoP by:
✅ A) Making exports cheaper and imports costlier
B) Making imports cheaper
C) Subsidies only
D) Effect is irrelevant
Explanation: Devaluation improves trade balance.
Q157. Import compression helps BoP by:
✅ A) Reducing outflows through restricted imports
B) Increasing imports
C) Subsidies only
D) Effect is irrelevant
Explanation: Compression reduces deficit.
Q158. External borrowing helps BoP by:
✅ A) Financing deficit temporarily
B) Eliminating deficit permanently
C) Subsidies only
D) Effect is irrelevant
Explanation: Borrowing provides short‑term relief.
Q159. IMF loans help BoP crisis by:
✅ A) Providing foreign exchange support
B) Providing subsidies only
C) Providing consumer goods
D) Help is irrelevant
Explanation: IMF loans stabilize reserves.
Q160. Structural reforms help BoP by:
✅ A) Improving competitiveness and reducing deficits
B) Increasing subsidies only
C) Reducing consumer goods only
D) Reforms are irrelevant
Explanation: Reforms strengthen external sector.
Q161. Currency depreciation during crisis leads to:
✅ A) Costlier imports, cheaper exports
B) Cheaper imports, costlier exports
C) Subsidies only
D) Effect is irrelevant
Explanation: Depreciation improves trade balance.
Q162. Reserve depletion during crisis indicates:
✅ A) Country is financing deficit unsustainably
B) Country has surplus reserves
C) Subsidies only
D) Indication is irrelevant
Explanation: Falling reserves show weakness.
Q163. Capital flight during crisis means:
✅ A) Sudden outflow of foreign investments
B) Sudden inflow of investments
C) Subsidies only
D) Meaning is irrelevant
Explanation: Capital flight destabilizes economy.
Q164. BoP crisis often leads to:
✅ A) Currency crisis and inflationary pressures
B) Currency appreciation
C) Subsidies only
D) Effect is irrelevant
Explanation: Crisis weakens currency and economy.
Q165. Adjustment through monetary policy includes:
✅ A) Tightening credit and raising interest rates
B) Expanding subsidies only
C) Expanding consumer goods only
D) Adjustment is irrelevant
Explanation: Tight policy reduces demand for imports.
Q166. Adjustment through fiscal policy includes:
✅ A) Reducing expenditure, raising taxes
B) Increasing subsidies only
C) Increasing consumer goods only
D) Adjustment is irrelevant
Explanation: Fiscal discipline reduces deficit.
Q167. Trade policy adjustment includes:
✅ A) Promoting exports and restricting imports
B) Promoting imports only
C) Subsidies only
D) Adjustment is irrelevant
Explanation: Trade policy balances BoP.
Q168. Exchange rate adjustment includes:
✅ A) Devaluation or flexible exchange rates
B) Fixed rates only
C) Subsidies only
D) Adjustment is irrelevant
Explanation: Exchange rate changes restore balance.
Q169. BoP crisis management requires:
✅ A) Coordinated monetary, fiscal, trade policies
B) Subsidies only
C) Consumer goods only
D) Management is irrelevant
Explanation: Coordination ensures stability.
Q170. IMF conditionality during crisis requires:
✅ A) Structural reforms and austerity measures
B) Subsidies only
C) Consumer goods only
D) Conditionality is irrelevant
Explanation: IMF loans require reforms.
Q171. BoP crisis adjustment may involve:
✅ A) Import substitution and export promotion
B) Import expansion
C) Subsidies only
D) Adjustment is irrelevant
Explanation: Substitution reduces dependence.
Q172. BoP crisis often forces:
✅ A) Economic liberalization and reforms
B) Subsidy expansion only
C) Consumer goods expansion only
D) Force is irrelevant
Explanation: Crisis triggers reforms.
Q173. BoP crisis recovery is measured by:
✅ A) Rising reserves, stable currency, reduced deficit
B) Falling reserves
C) Subsidies only
D) Measurement is irrelevant
Explanation: Recovery shows external stability.
Q174. BoP crisis prevention includes:
✅ A) Diversified exports, prudent borrowing, reserve accumulation
B) Subsidies only
C) Consumer goods only
D) Prevention is irrelevant
Explanation: Prevention avoids vulnerability.
Q175. BoP crisis overall reflects:
✅ A) External imbalance requiring policy intervention
B) Domestic subsidies only
C) Consumer goods only
D) Reflection is irrelevant
Explanation: Crisis shows unsustainable external position.
Q176. Globalization impacts BoP by:
✅ A) Increasing cross‑border trade and capital flows
B) Reducing external transactions
C) Subsidies only
D) Impact is irrelevant
Explanation: Globalization expands external sector activity.
Q177. Liberalization policies affect BoP by:
✅ A) Promoting exports, attracting FDI/FII
B) Restricting trade only
C) Subsidies only
D) Effect is irrelevant
Explanation: Liberalization improves external inflows.
Q178. Exchange rate regime influences BoP by:
✅ A) Affecting competitiveness of exports and imports
B) Ignoring trade flows
C) Subsidies only
D) Influence is irrelevant
Explanation: Exchange rate determines trade balance.
Q179. Floating exchange rate adjusts BoP by:
✅ A) Currency value changes with demand and supply
B) Fixed currency only
C) Subsidies only
D) Adjustment is irrelevant
Explanation: Floating rates balance external flows.
Q180. Fixed exchange rate may cause:
✅ A) Persistent BoP imbalances if misaligned
B) Automatic adjustment
C) Subsidies only
D) Effect is irrelevant
Explanation: Fixed rates can distort balance.
Q181. Managed float regime helps BoP by:
✅ A) Allowing partial flexibility with central bank intervention
B) Fully fixed rates only
C) Subsidies only
D) Effect is irrelevant
Explanation: Managed float stabilizes currency.
Q182. Trade policy reforms improve BoP by:
✅ A) Promoting exports and reducing import dependence
B) Expanding subsidies only
C) Expanding consumer goods only
D) Effect is irrelevant
Explanation: Trade reforms strengthen current account.
Q183. Capital account liberalization risks include:
✅ A) Volatility, capital flight, currency crisis
B) Stability only
C) Subsidies only
D) Risks are irrelevant
Explanation: Liberalization may cause instability.
Q184. BoP sustainability requires:
✅ A) Balanced current and capital accounts
B) Persistent deficits
C) Subsidies only
D) Requirement is irrelevant
Explanation: Sustainability ensures external stability.
Q185. BoP data interpretation involves:
✅ A) Analyzing trends in trade, services, capital flows, reserves
B) Ignoring external flows
C) Subsidies only
D) Interpretation is irrelevant
Explanation: Data analysis shows sector health.
Q186. BoP deficit financing options include:
✅ A) Borrowing, FDI inflows, reserve use
B) Ignoring deficit
C) Subsidies only
D) Options are irrelevant
Explanation: Financing covers shortfall.
Q187. BoP surplus management options include:
✅ A) Reserve accumulation, sterilization, outward investment
B) Ignoring surplus
C) Subsidies only
D) Options are irrelevant
Explanation: Surplus requires policy action.
Q188. BoP affects monetary policy by:
✅ A) Influencing money supply through forex flows
B) Ignoring monetary system
C) Subsidies only
D) Effect is irrelevant
Explanation: BoP links to monetary stability.
Q189. BoP affects fiscal policy by:
✅ A) Influencing expenditure, borrowing, external debt
B) Ignoring fiscal system
C) Subsidies only
D) Effect is irrelevant
Explanation: BoP impacts fiscal discipline.
Q190. BoP affects exchange rate policy by:
✅ A) Determining intervention needs
B) Ignoring currency
C) Subsidies only
D) Effect is irrelevant
Explanation: BoP drives exchange rate management.
Q191. BoP affects inflation by:
✅ A) Import prices and currency depreciation
B) Ignoring domestic prices
C) Subsidies only
D) Effect is irrelevant
Explanation: Deficit raises inflationary pressures.
Q192. BoP affects growth by:
✅ A) Influencing investment, trade, capital inflows
B) Ignoring economy
C) Subsidies only
D) Effect is irrelevant
Explanation: Strong BoP supports growth.
Q193. BoP affects employment by:
✅ A) Export growth creates jobs
B) Ignoring labor market
C) Subsidies only
D) Effect is irrelevant
Explanation: External sector boosts employment.
Q194. BoP affects reserves by:
✅ A) Surplus increases reserves, deficit depletes reserves
B) Ignoring reserves
C) Subsidies only
D) Effect is irrelevant
Explanation: BoP directly impacts reserves.
Q195. BoP affects investor confidence by:
✅ A) Surplus attracts investors, deficit deters them
B) Ignoring investors
C) Subsidies only
D) Effect is irrelevant
Explanation: BoP signals stability.
Q196. BoP affects credit rating by:
✅ A) Persistent deficits lower ratings, surpluses improve ratings
B) Ignoring ratings
C) Subsidies only
D) Effect is irrelevant
Explanation: External health influences ratings.
Q197. BoP affects globalization by:
✅ A) Integrating economies through trade and capital flows
B) Isolating economies
C) Subsidies only
D) Effect is irrelevant
Explanation: BoP reflects global integration.
Q198. BoP affects external debt by:
✅ A) Deficits increase borrowing needs
B) Surpluses reduce debt
C) Subsidies only
D) Effect is irrelevant
Explanation: BoP links to debt sustainability.
Q199. BoP affects currency stability by:
✅ A) Surplus stabilizes, deficit destabilizes currency
B) Ignoring currency
C) Subsidies only
D) Effect is irrelevant
Explanation: BoP drives currency strength.
Q200. BoP overall reflects:
✅ A) Country’s external economic health, policy effectiveness, global integration
B) Domestic subsidies only
C) Consumer goods only
D) Reflection is irrelevant
Explanation: BoP is comprehensive external account.
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