The likely impact on the Balance of payment position of Countries facing a financial crisis would be : Option 1: There is a deficit on the Balance of Payment account Option 2: There is surplus on the Balance of Payment account Option 3: There is no impact on the Balance of Payment account Option 4: There is a balance on the Balance of Payment account

The answer is 'There is a deficit on the Balance of Payment account'. View full solution:

CUET Economics - The likely impact on the Balance of payment position of Countries facing a financial crisis would be : | PYQs + Solutions

CUET Economics

Macro

Easy

There is a deficit on the Balance of Payment account

There is surplus on the Balance of Payment account

There is no impact on the Balance of Payment account

There is a balance on the Balance of Payment account

✅ Correct Option: 1

Related questions:

CUET Economics 2023 Slot 1

Match List - I with List - II.

List - I | List - II

(A) Trade includes export and import of goods | (I) Capital Account

(B) Foreign Direct Investment | (II) Invisible Trade

(D) The Receipts of payment without providing goods and services | (IV) Current Account

Choose the correct answer from the options given below :

28 May Shift 1

When income increases, consumer spending increases. Spending on imported goods is also likely to __________.

Decrease.
Constant.
Increase.
Maybe an increase or maybe decrease.

CUET Economics 2024 Slot 2

Read the text carefully and answer the questions :

The causes of the Asian Financial Crisis are complicated and disputable. A major cause is considered to be the collapse of the hot money bubble. During the late 1980s and early 1990s, many Southeast Asian Countries, including Thailand, Singapore, Malaysia, Indonesia, and South Korea, achieved massive economic growth of an 8% to 12% increase in their Gross Domestic Product (GDP). The achievement was known as the "Asian Economic Miracle. However, a significant risk was embedded in the achievement.

The economic development in the Countries mentioned above were mainly boosted by export growth and foreign investment. Therefore, high-interest rates and fixed currency exchange rates (pegged to the U.S. dollar) were implemented to attract hot money. Also, the exchange rate was pegged at a rate favorable to exporters. However, both the capital market and corporates were left exposed to foreign exchange risk due to the fixed currency exchange rate policy.

In the mid-1990s, following the recovery of the U.S. from a recession, the Federal Reserve raised the interest rate against inflation. The higher interest rate attracted hot money to flow into the U.S. market. leading to an appreciation of the U.S. dollar.

The currencies pegged to the U.S. dollar also appreciated, and thus hurt export growth. with a shock in both export and foreign investment, asset prices, which were leveraged by large amounts of credits, began to collapse. The panicked foreign investors began to withdraw. This translated into increased demand for US dollars. Further, there was no perceptible increase in the supply of dollars as wary investors shied away from investing in these economies. With demand being greater than supply, the US dollar appreciated with the domestic currency depreciating. The depreciation of the local currencies fuelled more investments being pulled out of these economies thus resulting in a crisis.

Thus Thai Government first ran out of foreign currency to support its exchange rate, forcing it to float the baht. The value of the baht thus collapsed immediately afterward. The same also happened to the rest of the Asian Countries soon after.

The likely impact on the Balance of payment position of Countries facing a financial crisis would be :

CUET Economics PYQs

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