Text Book Back Questions and Answers - Chapter 28 Balance of Trade and Balance of Payments 11th Commerce Guide Samacheer Kalvi Solutions - SaraNextGen [2024-2025]

Updated On May 15, 2024

By SaraNextGen

Chapter 28 - Balance of Trade and Balance of Payments - 11th Commerce Guide Samacheer Kalvi Solutions

Textbook Exercise Questions and Answers

I. Choose the Correct Answer

Question 1.
The Statement which discloses a record of transactions between the residents of one country and residents of foreign country …………….
(a) Balance of Payment
(b) Balance of Trade
(c) Statement of Receipts and Payments
(d) Accounting Statement
Answer:
(a) Balance of Payment

Question 2.
The Balance of Payments councils consists of …………….
(a) Current Account
(b) Capital Account
(c) Receipts and Payments Account
(d) Both Current Account and Capital Account
Answer:
(d) Both Current Account and Capital Account

Question 3.
Foreign capital long – term loan and foreign currency reserve are recorded under …………….
(a) Official Capital
(b) Private Capital
(c) Banking Capital
(d) Both Private and Official Capital
Answer:
(b) Private Capital

Question 4.
The term official capital includes …………….
(a) RBI holdings of foreign currencies
(b) Special Drawing Rights held by the Government
(c) Both A and B
(d) Foreign Investment
Answer:
(c) Both A and B

Question 5.
Balance of payments surplus indicates …………….
(a) Exports are more than the Imports
(b) Imports are more than Exports
(c) Exports and Imports are at Equilibrium
(d) Exports and Imports are above Equilibrium
Answer:
(a) Exports are more than the Imports

II. Very Short Answer Questions

Question 1.
What do you mean by Balance of payments?
Answer:
Balance of payment refers to a systematic record of all economic transactions between the residents of one country and the residents of foreign countries during a particular period of time.

Question 2.
What do you mean by Balance of trade?
Answer:
Balance of trade denotes the difference between the value of import and the value of export during a year.

Question 3.
Define Balance of payments.
Answer:
According to International Monetary Fund, “The balance of payments for given period is a systematic records of all economic transactions taken place during the period between residents of the reporting countries.”

Question 4.
What is the composition of private capital?
Answer:
Private capital consists of foreign investments, long term loan and foreign currency deposits.

Question 5.
Mention the components of banking capital.
Answer:
Banking capital includes movement into external financial asset and liabilities commercial and co – operative banks authorized to dealing in foreign exchange.

Question 6.
Mention the components of official capital.
Answer:
It includes RBI’s holdings of foreign currency and special drawing rights (SDR) held by the Government.

III. Short Answer Questions

Question 1.
Why is the Balance of payment prepared?
Answer:
Balance of payment helps in framing monetary, fiscal, and trade policies of the country. Government keenly observes the balance of payment position of its important trade partners in making policy decisions. It reveals whether a country produces enough economic output to pay for its growth.

Question 2.
What does the Balance of payment disclose?
Answer:
A Balance of Payment surplus indicates that country’s exports are more than its imports and its government and residents are savers. A Balance of Payment deficit points to the fact that the country’s import is more than the export. This situation forces the country to borrow from other countries to pay for its imports.

Question 3.
What are the credit items shown in currents accounts?
Answer:
A. Goods Export(visible)
B. Invisible-Exports

1. Transport service sold abroad
2. Banking service sold abroad
3. Insurance service sold abroad
4. Income received on loan and investment made in foreign countries
5. Expenses incurred by foreign tourists in India

Question 4.
State the components of the capital account.
Answer:
The capital account consists of three components

1. Private Capital
2. Banking Capital
3. Official Capital

IV. Long Answer Questions

Question 1.
Write down the structure of the capital account.
Answer:
The capital account consists of three components

1. Private Capital
2. Banking Capital
3. Official Capital

1. Private Capital: Private capital consists of foreign investments, long-term loans, and foreign currency deposits.
2. Banking Capital: Banking capital includes movement into external financial assets and liabilities commercial and cooperative banks authorized to dealing in foreign exchange.
3. Official Capital: It includes RBI’s holdings of foreign currency and special drawing rights (SDR) held by the Government.

Question 2.
Distinguish balance of payment and balance of trade.
Answer:

Question 3.
Highlight the features of the balance of trade.
Answer:

1. Balance of trade is a statement showing the net effect of export and import of a country.
2. It records only transactions, relating to merchandise, i.e. goods transactions.
3. It does not record capital transactions.
4. It is part of the current account of the BOP.
5. It may be favorable or unfavourable or in an equilibrium state.
6. It is not a true indicator of economic prosperity or economic relations of a country.
7. An unfavorable balance of trade can be converted into a favorable balance of payment.

For Future Learning

Question a.
Impact of Balance of Payments and Trade.
Answer:
The global village is also a term to express the constituting relationship between economics and other social sciences throughout the world making it a part of our popular culture before it actually happened.

Question b.
Necessary for Global Village concept.
Answer:
The current account, capital account, and financial account together make up the overall balance of payments, which accounts for all of the international inflows and outflows for a given Nation. The current account, as mentioned, capture the balance of trade meaning the purchases and sale of goods and services.

For Own Thinking

Question a.
Balance of Payment is key to economic development.
Answer:
Yes, it is correct.

Question b.
Importance of BOP and BOT.
Answer:
BOP:

1. It presents the international financial positions of the country.
2. It helps the government in taking decisions on monetary and fiscal policies on the one hand and on external trade and payments issued on the other.

BOT:

1. It is the difference between a country’s imports and export over a period of time.
2. It is the largest component of the balance of payments for all nations.