A2 Balance of Payments

Question 1

Balance of payments

Answer 1

records all of the financial transactions made between consumers, businesses and the government in one country with other countries

Question 2

Inflows of foreign currency

Answer 2

are counted as a positive entry e.g. export sold overseas

Question 3

Outflows of foreign currency

Answer 3

are counted as a negative entry e.g. imported goods and services

Question 4

Current account of the balance of payments is the main measure of

Answer 4

external trade performance

Question 5

3 factors that influence a country’s current account balance

Answer 5

productivity, inflation, exchange rates

Question 6

The Capital Account (subaccount for balance of payments)

Answer 6

Capital transfers involve transfers ofthe ownership of fixed assets.

Question 7

The Financial Account (subaccount for balance of payments)

Answer 7

The financial account involves investment. Forexample, direct investment, portfolio investment and reserve assets are part ofthe financial account.

Question 8

Balancing item

Answer 8

The components of the Balance of Payments should balance.That is, the sum of the accounts should be zero. Where there are imbalances, abalancing item is used to cover the discrepancies.

Question 9

Causes of balance of payments disequilibrium

Answer 9

• Appreciation of the currency- Economic growth- More competitive- Deindustrialisation- Membership of trade union- Attractiveness to foreign investors

Question 10

Write out the rest

Answer 10

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