A Country Runs a Deficit in Its Current Account If

question 116

Multiple Choice

A country runs a deficit in its current account if:

• A)it consumes less goods and services compared to what it produces.
• B)the interest and dividends earned by its residents on foreign assets exceed the interest and dividends earned by foreigners who invest in domestic assets.
• C)it follows the double-entry bookkeeping requirement that total debits must equal total credits.
• D)foreign currency received from exports and transfers exceeds the foreign exchange needed to pay for imports and to make unilateral transfers.
• E)foreign currency received from exports and transfers is less than the foreign exchange needed to pay for imports and to make unilateral transfers.

Understand the practice and purposes of hedging in managing financial risk.

Recognize the principles of cross-hedging and basis risk and how they apply in futures markets.

Comprehend the structure and application of interest rate swaps in financial management.

Define and identify the concepts of forward contracts and their role in financial markets.

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Definitions:

Swap Contract

A derivative contract through which two parties exchange financial instruments, typically involving cash flows based on a specified notional amount.

Specified Intervals

Pre-determined or agreed periods at which certain events or measurements take place.

Cash Flows

The total amount of money being transferred into and out of a business, especially as affecting liquidity.

Derivative Security

A financial instrument whose value is based on the performance of an underlying asset, such as stocks, bonds, commodities, or currencies.