Module M11 Quiz: The Balance of Payments
25 questions · Introductory · Mix of multiple choice, calculation, and short answer
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Attempt each question before clicking Show Answer. For calculation questions, write out your working before checking.
Question 1
Lesson L01 · Intro
Name the three BOP accounts and an example transaction for each.
Type: Short Answer
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Answer: Current account (iron ore export), capital account (debt forgiveness), financial account (foreign purchase of Australian bonds).
balance-of-payments
Question 2
Lesson L01 · Balance Of Payments
If current account=-3, capital account=+1, what must the financial account be?
Type: Calculation
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Answer: +2
CA + KA + FA = 0 → -3 + 1 + FA = 0 → FA = +2.
Question 3
Lesson L01 · Balance Of Payments
Where does an overseas student's tuition payment appear in the BOP?
Type: Multiple Choice
- A) Current account credit
- B) Financial account debit
- C) Capital account credit
- D) Current account debit
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Answer: A) Current account credit
Education services provided to non-residents are a credit in the current account (services export).
Question 4
Lesson L01 · Balance Of Payments
What is the largest structural drag on Australia's current account?
Type: Multiple Choice
- A) Trade deficit
- B) Net primary income deficit
- C) Net secondary income deficit
- D) Capital account surplus
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Answer: B) Net primary income deficit
Net primary income (investment income paid abroad) is Australia's largest structural current account drag.
Question 5
Lesson L01 · Balance Of Payments
If Australia's trade balance is +60, net primary income is -55, and net secondary income is -5, what is the current account balance?
Type: Calculation
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Answer: 0
60 + (-55) + (-5) = 0.
Question 6
Lesson L02 · Current Account Trends
What drove Australia's current account surpluses in 2019-2023?
Type: Multiple Choice
- A) Higher household saving
- B) Commodity export boom
- C) Government budget surpluses
- D) Reduced foreign debt
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Answer: B) Commodity export boom
Iron ore and coal prices surged, boosting export revenues despite persistent net primary income deficits.
Question 7
Lesson L02 · Current Account Trends
If trade balance=+120, net primary income=-65, net secondary income=-5, calculate the current account balance.
Type: Calculation
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Answer: 50
120 + (-65) + (-5) = +50.
Question 8
Lesson L02 · Intro
Why is Australia's current account surplus considered fragile?
Type: Short Answer
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Answer: It depends on high commodity prices which are cyclical and China-dependent, while net primary income deficits are structural.
current-account-trends
Question 9
Lesson L02 · Current Account Trends
Which component has persistently dragged Australia's current account?
Type: Multiple Choice
- A) Trade in goods
- B) Trade in services
- C) Net primary income
- D) Net secondary income
Show Answer
Answer: C) Net primary income
Net primary income (investment income paid abroad) is Australia's largest structural current account drag.
Question 10
Lesson L02 · Current Account Trends
If trade balance=+60, net primary income=-55, net secondary income=-5, and GDP=2,000, what is the current account as % of GDP?
Type: Calculation
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Answer: 0
(60 - 55 - 5) / 2,000 × 100 = 0%.
Question 11
Lesson L03 · Capital Flows
What distinguishes FDI from portfolio investment?
Type: Multiple Choice
- A) FDI is short-term
- B) FDI involves ≥10% ownership
- C) Portfolio investment is always debt
- D) Portfolio investment is illiquid
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Answer: B) FDI involves ≥10% ownership
FDI requires ≥10% ownership with management intent; portfolio investment is passive stakes <10%.
Question 12
Lesson L03 · Capital Flows
If foreign liabilities=4,500, foreign assets=3,375, and GDP=2,250, calculate NIIP as % of GDP.
Type: Calculation
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Answer: -50
(3,375 - 4,500) / 2,250 × 100 = -50%.
Question 13
Lesson L03 · Intro
How does Australia's superannuation sector affect the financial account?
Type: Short Answer
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Answer: Super funds invest heavily abroad, creating large outward portfolio investment flows that offset some foreign liabilities.
capital-flows
Question 14
Lesson L03 · Capital Flows
Which is riskier for Australia: FDI or portfolio debt inflows?
Type: Multiple Choice
- A) FDI
- B) Portfolio debt
- C) Both equally
- D) Neither is risky
Show Answer
Answer: B) Portfolio debt
Portfolio debt can reverse quickly ('sudden stop' risk), while FDI is long-term and stable.
Question 15
Lesson L03 · Capital Flows
If foreign liabilities=4,900 and portfolio=2,800, what % of liabilities are portfolio?
Type: Calculation
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Answer: 57.1
2,800 / 4,900 × 100 ≈ 57.1%.
Question 16
Lesson L04 · Intro
State the sectoral balances identity linking NX to saving and investment.
Type: Short Answer
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Answer: (S - I) + (T - G) = NX, where S-I is private saving-investment balance and T-G is government balance.
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Question 17
Lesson L04 · Saving Investment
If S=550, I=480, T=700, G=680, calculate NX.
Type: Calculation
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Answer: 90
(550 - 480) + (700 - 680) = 70 + 20 = +90.
Question 18
Lesson L04 · Intro
Why can't tariffs alone eliminate a trade deficit?
Type: Short Answer
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Answer: Because NX = (S - I) + (T - G) — the trade balance depends on saving and investment decisions, not just trade policy.
saving-investment
Question 19
Lesson L04 · Saving Investment
If private sector invests more than it saves (S < I) and government runs a deficit (T < G), what must NX be?
Type: Multiple Choice
- A) Positive (surplus)
- B) Negative (deficit)
- C) Zero
- D) It depends on interest rates
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Answer: B) Negative (deficit)
NX = (S - I) + (T - G) — if both terms are negative, NX must be negative (deficit).
Question 20
Lesson L04 · Saving Investment
If S-I=-80 and T-G=-40, calculate NX.
Type: Calculation
Show Answer
Answer: -120
-80 + (-40) = -120.
Question 21
Lesson L05 · External Debt
What is Australia's approximate net foreign debt as % of GDP in 2024?
Type: Multiple Choice
- A) 20-30%
- B) 50-55%
- C) 70-80%
- D) Over 100%
Show Answer
Answer: B) 50-55%
Net foreign debt is around 50-55% of GDP, while net foreign liabilities (including equity) are slightly higher.
Question 22
Lesson L05 · External Debt
If net foreign debt=1,320, interest rate=3.5%, and GDP=2,400, calculate annual interest cost.
Type: Calculation
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Answer: 46.2
1,320 × 0.035 = 46.2.
Question 23
Lesson L05 · Intro
Why is Australia's external debt less risky than some developing nations' debt?
Type: Short Answer
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Answer: Most is AUD-denominated or hedged, Australia has a floating exchange rate, strong institutions, and a AAA credit rating.
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Question 24
Lesson L05 · External Debt
What is the main risk of heavy reliance on portfolio debt inflows?
Type: Multiple Choice
- A) Currency risk
- B) Sudden stops
- C) Inflation
- D) Trade deficits
Show Answer
Answer: B) Sudden stops
Portfolio debt can reverse quickly in a crisis ('sudden stop' risk), unlike stable FDI.
Question 25
Lesson L05 · External Debt
If r=4% and g=5%, is debt-to-GDP ratio self-stabilising?
Type: Multiple Choice
- A) Yes, ratio falls
- B) No, ratio rises
- C) Only if NX>0
- D) Only if T>G
Show Answer
Answer: A) Yes, ratio falls
Since r < g, the ratio tends to fall automatically — no additional surplus needed.