Balance of Payments MCQ | Class 12 Economics | Chapter 6

Balance of Payments MCQ

Below are some of the very important NCERT MCQ Questions of Balance of Payments Class 12 Economics Chapter 6 with Answers. These Balance of Payments MCQ have been prepared by expert teachers and subject experts based on the latest syllabus and pattern of term 1 and term 2. We have given these Balance of Payments MCQ Class 12 Economics Questions with Answers to help students understand the concept.

MCQ Questions for Class 12 Economics Chapter 6 are very important for the latest CBSE term 1 and term 2 pattern. These MCQs are very important for students who want to score high in CBSE Board.

We have put together these NCERT Questions of Balance of Payments MCQ for Class 12 Economics Chapter 6 with Answers for the practice on a regular basis to score high in exams. Refer to these MCQs Questions with Answers here along with a detailed explanation.

Balance of Payment MCQ

MCQ

1. An Indian real estate company receives rent from Google in New York. This transaction would be recorded ______ on the side of _________ account.

  1. credit, current
  2. debit, capital
  3. credit, capital
  4. debit, current 

2. A company located in India receives a loan from a company located abroad. How is this transaction recorded in India‘s Balance of Payments Account?

  1. Credit side of current account
  2. Debit side of current account
  3. Credit side of capital account 
  4. Debit side of capital account

3. An Indian company located in India invests in a company located abroad. This transaction is entered in India’s Balance of Payments Account on:

  1. Credit side of current account
  2. Debit side Of current account
  3. Credit side of capital account
  4. Debit side of capital account

4. Foreign Exchange Transactions which are independent of other transactions in the Balance of Payments Account are called:

  1. Current transactions
  2. Capital transactions
  3. Autonomous transactions
  4. Accommodating transactions

5. Foreign Exchange transactions dependent on other Foreign Exchange Transactions are called:

  1. Current account transactions
  2. Capital account transactions
  3. Autonomous transactions
  4. Accommodating transactions

6. Which of the following statements is not true?

  1. Borrowings from the Asian Development Bank by the government is an accommodating transaction
  2. Loans even to Sri Lanka by the government is an accommodating transaction
  3. Buying machinery from Japan is an accommodating transaction
  4. Borrowing from the public is an accommodating transaction

7. Identify the correct sequence of alternatives

COLUMN 1COLUMN 2
(i) Borrowing from IMF(a) Current account
(ii) Import of shipping services(b) Invisible items
(iii) Export of machinery(c) Accomodating items
(iv) Foreign aid(d) Visible items
  1. (i) – (a)
  2. (ii) – (b)
  3. (iii) – (c)
  4. (iv) – (d)

8. Identify the correct matched pair.

COLUMN 1COLUMN 2
(i) Import of petroleum from Iran(a) Debit side of current account
(ii) BPO services provided by India to USA(b) Credit side of capital account
(iii) Investment by Saudi Aramco in RIL(c) Debit side of capital account
(iv) Export of spices to Greece(d) Debit side of current account
  1. (i) – (a)
  2. (ii) – (b)
  3. (iii) -(c)
  4. (iv) -(d)

9. Identify the correctly matched pair from the following table. 

COLUMN 1COLUMN 2
(i) Increase of Foreign Reserve from $400 to $450(a) Credit side of capital account
(ii) Dasault Ltd invested in Reliance defense(b) Debit side of capital account
(iii) Indian gave line of credit to Botswana(c) Credit side of the capital account
(iv) India borrowed $350 million from the world bank(d) Debit side of the capital account
  1. (i) – (a)
  2. (ii) – (b)
  3. (iii) – (c)
  4. (iv) – (d)

MCQ Answers

1. (1) 

It is an inflow of money and it is recurring in nature.

2. (3)

It is an inflow of money in Indian economy.

3. (4)

It is an outflow of money from Indian economy. 

4. (3)

Autonomous transactions are independent of the state of BOP Account For example, if a foreign company is making investments in India with the aim of earning profit, then such a transaction is independent of the country’s BOP situation.

5. (4)

Accommodating transactions are those that are undertaken as a consequence of the autonomous transactions.  

6. (3)

Buying machinery from Japan is an autonomous transaction.

Autonomous items refers to those Balance of Payment (BOP) transactions which are undertaken for profit.

7. (2)  

Invisible items refer to those items which cannot be seen, felt, touched or measured. For example, services of shipping, banking, insurance, etc.

8. (1) 

Import of goods and services are recorded in the current account. Import is recorded on the debit side as it leads to an outflow of foreign exchange in the country.

9. (2)


Assertion-Reason Based MCQ 

Code

  1. Both assertion and reason are true and reason is the correct explanation of assertion.
  2. Both assertion and reason are true but reason is not the correct explanation of assertion.  
  3. Assertion is true but reason is false.
  4. Assertion is false but reason is true. 

1. Assertion Import of machinery is reflected in the current account of balance of payments,

Reason Export and import of goods and invisibles are recorded in the current account of balance of payments.

2. Assertion The level of aggregate demand tends to rise.

Reason Exports are more than imports. 

3. Assertion Autonomous items cause movements of goods and services across  the borders.

Reason Accommodating items to clear the deficit or surplus in the Balance of Payment.

4. Assertion Current account is a part of Balance of trade.

Reason Current account records exports and imports of goods and services and transfer payments.

Assertion-Reasoning Based MCQ Answers 

1. (1)

2. (1) 

Aggregate demand is based on four components. These are: consumption, investment, government spending and net exports. Exports lead to a rise in AD.

3. (2) 

Autonomous items refers to those Balance of Payment (BOP) transactions which are undertaken for profit.

4. (4) 

Balance of trade is a part of the current account. Balance on Current Account=Trade balance + invisibles balance


Case-Study Based MCQ 

1. Read the following passage and answer accordingly.

NEW DELHI: India’s balance of payments this year is going to be ‘very very strong’ on the back of significant improvement in exports and a fall in imports, Commerce and Industry; Minister Piyush Goyal said on Monday.

He said that ‘good’ green shoots are visible in the economy and exports have shown a ‘good’ turnaround.

“We are in July at about 91 per cent export level of July 2019 figures. Imports are still at about 70-71 percent of July 2019. So, broadly our balance of payments this year is going to be very very strong, which is why we feel confident that Indian industry will see opportunities for themselves, and will see opportunities of growth,” he said at a FICCI webinar.

India’s exports fell for the fourth straight month in June as shipments of key segments like petroleum and textiles declined but the country’s trade turned surplus for the first time in 18 years as imports dropped by a steeper 47.59 per cent. The country posted a trade surplus of USD 0.79 billion in June.

(i) Why is India having a very strong Balance of Payment?

(a) Increase in Exports
(b) Decrease in Imports
(c) Both (a) and (b)
(d) Neither (a) nor (b)

(ii) Read the following statements – 

Assertion: The country’s trade turned surplus for the first time.
Reason: India’s exports fell for the fourth straight month in June.

Select the correct alternative from the following:

(a) Both Assertion and Reason are True, and Reason is the correct explanation of the Assertion
(b) Both Assertion and Reason are True, but Reason is not the correct explanation of the Assertion
(c) Assertion is true, but Reason is false. 
(d) Assertion is false, but Reason is true.

(iii) Consider the following statements:     

(I) It will get a lot of investments.
(II) The government can achieve its development goals.
(III) Increase the GDP of the economy.
(IV) It is more profitable for the domestic manufacturers.

Which of the following is the true benefit of having a strong Balance of Payment:

(a) i and iii only
(b) iii and iv only 
(c) i, iii and iv only 
(d) i, ii, iii and iv

(iv) _______ is the situation when the imports of goods are more than the export of goods. 

(a) Trade Surplus
(b) Trade Deficit
(c) Either (a) or (b)
(d) Neither (a) nor (b) 

2. Read the following passage and answer accordingly. 

A lower trade deficit along with strong FDI and portfolio flows in FN 19 January March quarter may help the external sector balance sheet and prop up both current account as well as the overall balance of payments numbers. 

This could reflect a lower current account deficit in the balance of payments for the quarter ended March. Trade balance, an important component of the current account, is estimated at a deficit of $35.6 billion for Q4 compared to $40.6 billion in the same period a year ago, thanks to lower crude prices and slowdown in gold and other imports. 

Other factors influencing the current account are software services income and remittances by overseas Indians. Market estimates for F/Y 19 March quarter current account deficit is at $8.1 billion versus $13.2 billion for March’18 quarter.

In the capital account, thanks to some bidding for defaulting companies by Arcelor Mittal which are expected to have bought in some funds. 

FDI inflows in March are projected to be almost double the amount in the previous comparable period of March 2018. Also, external commercial borrowing flows in the latest quarter are almost double the amount of the previous comparable quarter ending March 2018. 

In addition, forex resources raised through the swap agreements with the commercial banks are expected to add another $5 billion through the foreign investment route. 

The overall balance of payments surplus is estimated higher at $17 billion for the latest March quarter compared to $13 billion surplus in the March 2018 quarter.

(i) Which of the following is not the benefit of a lower trade deficit?

(a) Help the external sector balance sheet   
(b) Prop-up the Current Account
(c) Increase the Balance of Payment numbers
(d) Increase the Capital Account deficit

(ii) FDI inflows in March is a type of

(a) Accommodating transactions
(b) Accumulating transactions
(c) Autonomous transactions
(d) None of the above

(iii) The Forex resources has surged in India. What effect does it have on the country? 

(a) Balance of Payment surplus
(b) Balance of trade surplus
(c) Balance of Payment deficit 
(d) Balance of trade deficit

(iv) FDI inflows is recorded in which of the following accounts of Balance of Payment: 

(a) Current Account
(b) Capital Account
(c) Foreign Reserve Account
(d) Depends on the type of FDI

3. Read the passage below and answer accordingly.

The trade deficit between India and China in April-June this fiscal year fell to USD 5.48 billion as compared to USD 13.1 billion in the same period last year. Parliament was informed on Wednesday. 

In a written reply, Commerce and Industry Minister Piyush Goyal said the bilateral trade between the countries dipped to USD 16.55 billion during the first three months of 2020-21 as against USD 21.42 billion in the same period last year.

“Government has consistently taken steps to balance our trade with China by increasing our exports to China and reducing our dependence on imports from China,” he said.

In a separate reply, the minister said at present, atx»ut tariff lines (or products) are under the restricted/prohibited category for imports under the Foreign trade imports of these products are restricted from all countries, including China. 

Replying to a separate question, he said merchandise exports from special economic zones (SF7s) dipped to ₹81,481 crore during April-August, 2020 as against ₹1,30,129 crore in the same period of 2019-20.

“However, services exports have shown a growth of 9 per cent during April to August 2020 in comparison to corresponding period of previous year,” he added.

(i) Considering the steps taken by the government to reduce the trade deficit with China, choose the correct alternative:

(I) To reduce the dependence on imports from China.
(II) To increase our exports to China
(III) To make Rupees stronger than Yuan
(IV) To prohibit the use of Chinese goods

(a) (i) and (ii)
(b) (ii) and (iii)
(c) (i), (ii) and (iii) 
(d) (iii) and (iv)

(ii) Which of the following has seen growth?

(a) Trade deficit with China
(b) Imports of merchandise
(c) Export of merchandise
(d) Export of service

(iii) The bilateral trade between India and China dipped to

(a) 5.48 Billion USD
(b) 13.1 Billion USD
(c) 16.55 Billion USD
(d) 21.42 Billion USD 

(iv) 550 tariff lines (or products) are under the restricted/prohibited category under the Foreign Trade Policy. 

(a) imports
(b) exports
(c) either (a) or (b)
(d) neither (a) nor (b) 

Case-Study Based MCQ Answers 

1.

(i) (c) 

A Balance Of Payments surplus means the country exports more than it imports 

(ii) (b)

Imports dropped by a steeper 47.59%

(iii) (b)

(iv) (b)

2. 

(i) (4)

(ii) (4)

Foreign direct investments are autonomous transactions of long term capital movements, motivated by economic interests, with the profit in the first place.

(iii) (a) 

The Balance of Payments of a country is the difference between all money flowing into the country in a particular period of time and the outflow of money to the rest of the world.

(iv) (2) 

Explanation: Foreign Investment causes an inflow of foreign exchange into the country. Thus, it is recorded as positive items in the Capital Account of BOP.

3.

(i) (a) 

Minister Piyush Goyal said, “Government has consistently taken steps to balance our trade with China by increasing our exports to China and reducing our dependence on imports from China.”

(ii) (d) 

Explanation: Services exports have shown a growth of 9 per cent during April to August 2020.

(iii) (c)

(iv) (a) 


Final Words

From the above article, you have practiced Balance of Payment MCQ of class 12 Economics Chapter 6. We hope that the above-mentioned MCQs for term 1 of chapter 6  Balance of Payment  will surely help you in your exam. 

If you have any doubts or queries regarding Balance of Payment MCQ (Multiple Choice Questions) with Answers, feel free to reach us and we will get back to you as early as possible.

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