CFA Practice Question

There are 923 practice questions for this topic.

CFA Practice Question

For an upcoming sightseeing visit to India, a U.S. resident recently purchased a hundred thousand Indian rupees. His action created a ______.
A. credit balance in the U.S. BOP account
B. debit balance in the U.S. BOP account
C. deficit in the U.S. trade account
Explanation: This is a point of convention where much confusion exists. Before you answer this question, you should remember two things:
1. In international finance, a country's reserve of foreign currency and foreign-produced goods is treated as an asset.
2. In accounting, by convention, increases in assets are recorded as "debit" entries and reductions are treated as "credit" entries.

In the above example, there is an inflow of Indian rupees and the transaction is hence recorded as a debit to the U.S. BOP account.

User Contributed Comments 1

User Comment
jmcarr02 His action was to buy the Indian Rupees or to have commited in an upcoming trip?
You need to log in first to add your comment.