Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Select all that are true regarding the balance of payments ( BOP ) : Since the balance of payments is market driven it will be

Select all that are true regarding the balance of payments (BOP):
Since the balance of payments is market driven it will be in equilibrium (i.e. equal to zero), like all markets.
Relative prices that change (due to FX rates) create an arbitrage opportunity on all four parts of the BOP that alter the engagement in those four parts and that brings the BOP closer to balance.
The balance of payments is an idea that holds over the long run since it depends on changes in the FX rate that alter supply and demand flows in FX market due to imbalances in supply and demand seen in the BOP accounts.
The balance of payments theory is that the net investment flows and trade flows between two countries (currency pair, excluding foreign reserves) balance to zero consistently and quickly.
The balance of payments is unlikely to exactly balance since it relies on imperfect arbitrage across international boarders.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Contemporary Financial Management

Authors: R. Charles Moyer, William J. Kretlow, James R. Mcguigan

7th Edition

0538877766, 9780538877763

More Books

Students also viewed these Finance questions