Test on International Trade and Foreign Exchange

Question 1: International trade primarily benefits smaller, local producers by creating new market opportunities.

A. Ano

B. Ne

Explanation: Specialization, which is a key aspect of international trade, favours larger and wealthier producers, often driving smaller producers out of business rather than primarily benefiting them.

Question 2: Which of the following is considered a supply-side reason for international trade?

A. Changes in consumer tastes and preferences

B. Uneven distribution of natural resources

C. Increases in income levels

D. Religious, cultural, and social lifestyles differing from country to country

Explanation: The uneven distribution of natural resources is a supply-side reason for international trade, as countries use their unique resources to produce goods more efficiently. The other options listed are all demand-side reasons for international trade.

Question 3: The implementation of tariffs by the government is a measure that can help correct a current account deficit.

A. Ano

B. Ne

Explanation: The study materials state that the government can implement tariffs, quotas, and import permits. These measures reduce imports and encourage consumers to buy locally produced goods, which helps to correct a current account deficit.

Question 4: An investment is classified as a portfolio investment if the investor holds 10% or more ownership of the business.

A. Ano

B. Ne

Explanation: Portfolio investment refers to the purchase of financial assets such as shares or bonds in which the investor holds less than 10% ownership or control of the business. For shareholding or ownership control in a business to count as a direct investment, the investment must be worth 10% or more of the value of the business.

Question 5: What is the primary purpose of the 'Unrecorded Transactions' entry in the Balance of Payments account?

A. To record the transfer of fixed asset ownership between countries

B. To reflect any errors that were made or transactions that were omitted

C. To track the inflows and outflows of financial assets and liabilities from direct investments

D. To account for changes in a country's gold and foreign currency reserves

Explanation: The study materials state that 'Unrecorded Transactions' are made in the balance of payments account to reflect any errors that were made or transactions that were omitted.