Looking for the answer to the question below related to Financial Management ?
Systematic record of economic transaction of a country during a given period of time is_______________
The Correct Answer Is:
- B. BOP
The correct answer is B. BOP (Balance of Payments). A systematic record of economic transactions of a country during a given period of time is represented by the Balance of Payments (BoP). The BoP is a comprehensive accounting system that records all economic transactions between a country and the rest of the world.
Let’s explore in detail why this answer is correct and why the other options, A, C, and D, are not:
B. BOP (Balance of Payments) –
This option is correct. The Balance of Payments is a systematic and structured record of all economic transactions that occur between a country and the rest of the world over a specific period, usually a year or a quarter. It includes various sub-accounts that record transactions related to international trade in goods and services, income flows, financial capital flows, and official reserves.
Now, let’s examine why the other options are not correct:
A. ADR (American Depositary Receipt) –
This option is incorrect. An American Depositary Receipt (ADR) is a financial instrument that represents shares of a foreign company trading on U.S. stock exchanges. ADRs allow U.S. investors to invest in foreign companies without the need to trade on foreign exchanges. ADRs are not a systematic record of a country’s economic transactions.
C. GDR (Global Depositary Receipt) –
This option is incorrect. A Global Depositary Receipt (GDR) is a financial instrument similar to an ADR but designed to facilitate investment in foreign companies by investors outside the United States. GDRs are used to raise capital in international markets and are not related to recording a country’s economic transactions.
D. IFRS (International Financial Reporting Standards) –
This option is incorrect. International Financial Reporting Standards (IFRS) are a set of accounting standards and principles used for financial reporting by companies worldwide. IFRS provides guidelines for preparing financial statements and ensuring transparency in financial reporting. IFRS is not a record of economic transactions but rather a framework for financial reporting.
The Balance of Payments is a fundamental concept in international economics and finance. It provides a comprehensive overview of a country’s economic interactions with the rest of the world. The BoP consists of three primary components:
1. Current Account:
The current account records transactions related to the exchange of goods and services, income flows, and current transfers (e.g., remittances, foreign aid). It reflects a country’s trade balance (exports minus imports) and includes the balance of trade in goods and services.
2. Capital Account:
The capital account records capital transactions, such as foreign direct investment (FDI), portfolio investment, and other financial transfers. It reflects the net inflow or outflow of capital.
3. Financial Account:
The financial account tracks international financial flows, including purchases and sales of assets like stocks, bonds, and real estate, as well as changes in a country’s official reserve assets, such as foreign currency and gold.
The BoP follows a double-entry accounting system, where every transaction is recorded twice, ensuring that the accounting equation balances. In a well-maintained BoP, the sum of the current account, capital account, and financial account should equal zero.
The BoP is used for various purposes, including monitoring a country’s trade balance, assessing its external financial position, identifying vulnerabilities in the economy, and understanding the impact of international trade and investment on a nation’s economic health.
In summary, the correct answer is B. BOP (Balance of Payments) because it is a systematic record of economic transactions of a country during a specific period, offering insights into a nation’s trade balance, financial flows, and overall economic interactions with the rest of the world.
The other options, A, C, and D, do not represent such a systematic record of economic transactions and are related to financial instruments or accounting standards in different contexts.
- Funs based services includes all of the following except _______________
- _________ deals with the global rules of trade between nations.