Visible Imports 150,231 Visible Exports 198,270 Invisible imports 25,890 Invisible exports 26,790 Net direct investment 755,000
1)What is the balance of trade?
2)What is the current account balance? 3) Assuming the capital account has only two components, FDI and FPI, and balance in its BOP account, what is the country’s Net Foreign Portfolio investment? (Chapter 12, Kenen; Chapter5, F&T) Q2. Explain theory of optimal currency areas. Do you think the states and regions of US form more of an Optimal currency area than the national economies of European union? Discuss. (Chapter 14, Kenen)
Q3. What does it mean to have deficit and surplus in a country’s BOP account? Is a surplus always good and a deficit always bad for the economy? (Chapter 12, Kenen; Chapter5, F&T) Q4. Briefly explain how exchange rate is important for a country’s economy. Further explain the behaviour of exchange rates and factors affecting a country’s exchange rate. (chapter 1&2, F&T) Q5. What do you mean by exchange rate appreciation and depreciation? Explain with a hypothetical example. Briefly explain multilateral exchange rates with examples. (chapter 2, F&T)
Q6. Explain how a Forex market operates and what are the different financial instruments used in a forex market. (Chapter2, F&T) Q7. What are the features of fixed and flexible exchange rate regime? Discuss the pros and cons of both in different situations. (Chapter2, F&T) Q8. What do you mean by managed floating exchange rate regime? Why do countries need government interventions in foreign exchange market? What is the exchange rate system RBI has adopted in the recent past? (Chapter 2, F&T) Q9. Explain the following terms Purchasing Power Parity Nominal and real exchange rates Explain what do you mean by overvaluation and undervaluation of a currency. (Chapter2, F&T) Q10. Briefly explain Fisher effect and Real interest parity. (Chapter 3, F&T) Q11. What are the different measurements of money? Briefly explain money market equilibrium and the factors associated with it. (Chapter 3, F&T) Q12. What do you mean by exchange rate overshooting? Explain Trilemma in the context of exchange rate policy goals. (Chapter 4, F&E) Q13. What is the importance of external wealth? What explains changes in external wealth of a country? (Chapter 5, F&E) Q14. Describe the post reforms trends in BOP and foreign reserve of India. (Economic surveys) Q15. Explain the following concepts. a) Balance of Payment b) Current Account c) Capital Account d) Net Foreign Investment e) Balance of Payment disequilibrium (Chapter 12, Kenen; Chapter5, F&T) Q16. Briefly explain major categories of transactions and how they are recorded in BOP account of a country. (Chapter 12, Kenen; Chapter5, F&T) Q17. Describe the international monetary system known as the Bretton Woods system, or the gold exchange standard. What were the factors behind its eventual breakdown? Q18. Briefly discuss what explains deviation of exchange rate from PPP? (Chapter3, F&T) Q19. What is the assignment problem in context of foreign trade and discuss its solution as provided by Robert Mundell? (Chapter 14, Kenen) Q20. Evaluate the following statement. “The trade balance will increase only after a real depreciation if the responsiveness of trade volumes to real exchange rate changes is sufficiently large (or sufficiently elastic) to ensure that the volume effects exceed the price effects” (Chapter 14, Kenen) Q21. In an open economy, what are the components of GDP, GNE, GNI, GNDI of a country? How are they interrelated? (Chapter 5, F&T) Q22. In a two-country world consisting only India and China, Following the theory of interdependence in chapter 13 of Kenen, explain what happens to India’s income and current account balance when China tries to raise its income by expenditure changing policy. Briefly discuss the theory of optimal policy. (Chapter 13, Kenen) MCQs
Use the following table to answer question 1-3
(Production possibilities per unit of Economic Resources) Food Clothing Country A 6 24 Country B 10 30 Q1. Which of the following statements is true? a. Country a has an absolute advantage in the production of both food and clothing b. Country B has ab absolute advantage in the production of both food and clothing c. Country A has an absolute advantage in food and country B has an absolute advantage is clothing. d. Country B has an absolute advantage in food and country has an absolute advantage in clothing (b) Q2. In country A, the opportunity cost of a unit of food is a. 4 units of clothing b. 6 units of clothing c. 24 units of clothing d. 1 units of clothing Q3. According to the table a. country A has a comparative advantage in food b. Country B has a comparative advantage in food c. Country A has a comparative advantage in clothing d. country B has a comparative advantage in food and clothing Q4. What is the ‘trilemma’ or ‘impossible trinity’ in international macroeconomics? A) The inability to achieve low inflation, low unemployment, and high growth simultaneously B) The inability to achieve free capital mobility, a fixed exchange rate, and an independent monetary policy simultaneously C) The inability to achieve trade balance, budget balance, and current account balance simultaneously D) The inability to achieve high savings, high investment, and high consumption simultaneously Q5. The difference between the value of exports and the value of imports of goods of the country is its a. Balance of payments b. Balance of trade c. Favourable balance of trade d. Unfavourable balance of trade Q6. What is the ‘real exchange rate’ and how is it calculated? A) The nominal exchange rate adjusted for inflation differentials between two countries B) The nominal exchange rate adjusted for interest rate differentials between two countries C) The nominal exchange rate adjusted for GDP growth differentials between two countries D) The nominal exchange rate adjusted for trade balance differentials between two countries Q7. What explains the ‘optimum currency area’ the best? A) A theory that identifies the optimal conditions under which countries should adopt a common currency B) A theory that identifies the optimal conditions under which countries should maintain their own currencies C) A theory that identifies the optimal conditions under which countries should adopt a fixed exchange rate system D) A theory that identifies the optimal conditions under which countries should adopt a floating exchange rate system Q8. 'Invisible imports' will include the expenditure on (except) a. Foreign travel abroad b. Payments made in foreign exchange for the services obtained from nationals. c. Foreign tourists in the country. d. Interest on foreign capital Q9. Which one of the following is not included in the foreign-exchange reserves of india? a. Foreign-currency assets held by the RBI b. Gold holding of the RBI c. Silver holding of the RBI d. SDRs Q10. A depreciation of the rupee will have its most pronounced impact on exports if the demand for exports is: a. constant b. inelastic c. elastic d. None of the above Q11. A country has a trade deficit of $30 billion and net income from abroad of $10 billion. What is the current account balance? A) $20 billion surplus B) $20 billion deficit C) $40 billion surplus D) $40 billion deficit Q12. A country’s foreign exchange reserves increase by $5 billion. If its current account deficit is $3 billion, what is the capital account balance? A) $2 billion surplus B) $2 billion deficit C) $8 billion surplus D) $8 billion deficit
