2.12 Trade

Question 1

What is the Balance Of Payments ?

Answer 1

A comprehensive record of a country’s economic transactions with the rest of the world over an economic period.

Question 2

What is the BoP made of ?

Answer 2

• The Current Account
• The Capital And Financial Account

Question 3

What is Foreign Direct Investment ?

Answer 3

When an investor in one country invests in a business or corporation in another country

Question 4

What is Portfolio Investment ?

Answer 4

The purchase of financial assets with the goal of earning returns

Question 5

What are the 4 elements of the Current Account ?

Answer 5

• Balance of Trade in Goods
• Balance of Trade in Services
• Primary Income
• Secondary Income

Question 6

What is the Balance of Trade in Goods ?

Answer 6

Exports of Goods - Imports of Goods

Question 7

What is the Balance of Trade in Services ?

Answer 7

Exports of Services - Imports of Services

Question 8

What is Primary Income in the Current Account ?

Answer 8

Investments such as dividends, interest and profit from foreign investment

Question 9

What is Secondary Income in the Current Account ?

Answer 9

Current transfers, remittances , foreign aid and gifts

Question 10

`What is the Capital and Financial Account ?

Answer 10

Records the flow of financial assets and liabilities

Question 11

What is the Capital Account ?

Answer 11

Capital transfers and the acquisition or disposal of non-produced assets such as patents and trademarks.

Question 12

What does the Financial Accounts contain ?

Answer 12

• Direct Investment = Physical(factories, machinery)
• Portfolio Investment = Stocks and Bonds
• Other Investments = Loans, currency deposits , trade credits
• Reserve assets = Reserve of foreign currency and Gold

Question 13

How to balance the BoP ?

Answer 13

• Central Bank Reserves = Purchase foreign currency
• Outward Investment. = Invest Abroad
• Debt Repayment = outflow/balance the surplus
• Import Increase/ Export Decrease
• Foreign Aid and Grants